A Conversation about Flexible Financial Credit Agreements (Text Version)

In this video, Paul Schwabe and David Freeman, senior financial analysts at NREL, discuss flexible financial credit agreements (FFCAs) with John Joshi, director of Financing Solutions at the New York State Energy Research and Development Authority (NYSERDA).

John: Good morning. So, this is John Joshi from NYSERDA. I'm director of Financing Solutions in New York, working toward innovation and finance, renewable energy uptake affecting especially LMI communities. With us we have today Paul Schwabe and David Feldman, senior analyst, at the National Renewable Energy Lab—NREL—working with NYSERDA—or NYSERDA's assisting them—on a new project that they're doing, funded by DOE. It's called the FFCA—the flexible financial credit agreement.

Welcome, Paul, David. Really appreciate you taking the time out to meet with us today.

David: Likewise.

Paul: Thanks for having us.

John: So, let's just get into it. What's the goal of your project to the FFCA? I understand it's about access in LMI communities, but could you give us a little bit more insight into what the project entails?

David: Sure. Well, I'll just say, you know, there's currently challenges for solar adoption for many customers out there, not just LMI customers. But there are unique issues that LMI customers face that require unique challenges, unique solutions. And the current—there have been a bunch of attempts at further LMI adoption within the solar space, and some of them have been successful, but we feel there's still a lot of roadblocks that are preventing enough folks from being able to enjoy the benefits of solar—cheaper electricity, cleaner electricity, particularly in LMI space. And there are specific reasons that these solar projects are unable to be accomplished—some of the low- and moderate-income customers.


John: Interesting.

David: Some of them we know and some of them we're still learning.

John: So, just to kind of expand on that, what's the hypothesis that you're trying to then solve? If they're less of unknowns and there's some knowns, what are you trying to solve with this—the FFCA concepts? David or Paul? Either one?

Paul: Yeah. Do you want me to take a shot, David?

David: Yeah. Go for it. Yeah.

Paul: So, I think what we're—when we started/initiated this project, one of our initial thoughts was, “There are a lot of great financial products out there, and both for LMI customers, low to moderate, as well as regular, non-LMI customers.” So, solar loans, PPAs, pace financing, leases—all these products. And the idea is not to necessarily replace those or saying that those aren't—but to add to those pool of products. And the reason why we think there's opportunity is because we know, as David was mentioning, there's still remaining challenges for addressing—particularly certain market segments like LMI. And so, the thesis would be, are there ways—either developing new products that offer features that maybe some of these existing suite of products don't already offer or sort of the converse or inverse of that, I guess, is adding those features to the existing product set.

And we can talk about what some of those ideas might be, but I think the idea is not to necessarily replace those, but be added to—either through products or features.

John: Okay. So, that's interesting. Let's drill down on that in terms of what's—in your research at NREL and—what's the gap? What is the missing component that keeps LMI consumers from adopting renewable? Is it a question of affordability?

Is it a question of access? Is it the structures are not suitable for the type of, say, income streams LMI customers or have or the residency—they may be more transient. What is it—can you kind of elaborate more what those are and then how, in FFCA, it might work in that context?

David: Sure. I mean, first of all, in many cases, affordability's an interesting question because solar saves folks money and a lot of opportunities in solar have just been coming down more and more over the years. So, there's just more opportunity for savings. So, it's really the question of—not so much a question of affordability in the sense of can customers pay a premium; it's can they enjoy the benefits of savings? And what are the structural impediments?

So, there's some good examples of where—the way these things are structured to allow customers to go solar that don't line up well with the characteristics of certain customers. So, if you—oftentimes, with a solar contract, it's a steady stream of payments that you have to make over a long period of time. And it requires you to sort of be in a specific location. Well, if you have seasonal income where you make more money at a specific time of year than another, then steady payments might be more difficult. If you are more likely to move, then—and that might be between neighborhoods or service territories or even farther—then, you know, assigning your sort of solar contract to your given location becomes more difficult.

Obviously, credit is always an issue, so if there are ways of standing behind that or getting, for example, your employer to stand behind to sort of provide those services, those are all things that are barriers. And then, for ways of making—you know, it's in the title—more flexible. There are ways that these contracts could be more flexible to account for some of the challenges that some customers face. Then, you have the opportunity to open up to more customers.

John: Yeah.

Paul: I would –

John: Yeah. Go ahead.

Paul: I was just gonna add one thing to David's point—agree with all that—is also, if you think of—like, in some cases, in doing our research up to this point, we had heard, you know, it's hard—it can be difficult—particularly for LMI customers—to get people to sign up for long-term contract agreements, which are really kind of hallmarks of PPA's leases/loans—are long-term agreements. And that's how you perhaps get the best pricing—is, you know, kind of locking in a customer for a contract period. And so, there's been products out there that, of course, shorten the length of the time of the loan or the lease but that you may not be getting the most affordability out of those. So, I think there's trade-offs. I'm speaking in general terms, but there's trade-offs between these different barriers that you might be able to address maybe one, but then kind of give up something on another side of it.

So, just agreeing with—or doubling down on everything that David mentioned and just saying, you know, sometimes it's difficult to have multiple—or addressing multiple pain points within a single product.

John: Got it. But, you know, at the same time, affordability is a big—obviously, a big challenge for LMI consumers with the seasonality income. That being said, being an LMI consumer doesn't necessarily mean you have bad credit either, right? So, the challenge then becomes how do you structure a contract such that it's also bankable for the investors or the parties that are providing that? Or are you thinking that it's not all the consumers paying for all of the resource, or there's a partial subsidization approach or—so, has—obviously, we're addressing this project because you feel there's a gap in the market, right?

And we've talked about LMI consumers and their ability and their seasonality income and all that. What is a key gap that you're trying to close beyond just having the access to these things or having the income? What is that broad gap that you're really trying to close there?

Paul: Maybe I can take one. I agree with a lot of what David had said. I do think affordability is a key issue that is still in certain markets and may be just not affordable enough. Even if it is saving money, perhaps it's kind of close to current electric bills or maybe just a little bit cheaper. If we can grow that affordability, if we can make it even more affordable, it gets harder and harder to kind of rationally not make that choice.

So, I do feel like if there's ways that we can add value to the solar product or, you know, trying to tap value streams that aren't currently tapped or some concepts like that, that ultimately get back to the affordability question, I think that would be one of the most powerful tools that we have. But that's also probably one of the most difficult aspects of reimagining some of these products or services.

John: David?

David: Yeah. I would say, you know, Paul's absolutely right. I mean, the cheaper these things become, the easier it is to sell to everyone—but particularly folks with cash flow [Inaudible due to John Joshi coughing]. And John, you absolutely are right about this question of credit, right? I mean, there are plenty of folks—LMI folks—with good credit, however, you know, when people look at loans—and often, solar products are akin to loans—people aren't just looking at credit.

It's also sort of debt-to-income ratio, things of that nature. So, I think, you know—I don't think there is a magic bullet out there when you talk about what is the one thing. I think there are a host of issues. And I don't think—some of those might require subsidies of some kind—and it doesn't have to be a cash outlay, it just means that someone's standing behind customers.

And some of it might be, in certain circumstances, a subsidy, but in a sense of, you know, employer—subsidized employee health care, you know? So, it's not like as if there aren't all sorts of subsidies happening in marketplace already, but other things, you know, are not—don't necessarily require any sort of—anyone giving anything up. It's just more flexibility within the system. So, if I'm a customer and I switch utility territories and I have a solar agreement with one utility, why can't I switch it to the next utility? If that's set up, there's no real—no one's necessarily losing there if there's a system set in place.

John: Right. Right.

David: The other thing—and I didn't mention this before—but some of this has been sort of—again, a thousand cuts—there's been a history of predatory consumer practices, and particularly in the LMI states. And so, these new products are often, rightfully so, seen by lots of customers as—people are mistrustful of those, particularly when you're saying—that's the whole pitch: “We're gonna save you money from day one and you don't have to do anything.” That sounds too good to be true, and historically, in a lot of cases, too good to be true is too good to be true. So, some of this is just a matter of—is part of this just sort of coming up with products that are more attune to sales practices that are in line with what will connect to customers.

John: Right. So, one of the concerns I have, obviously—and research bears this out—that getting uptake in energy efficiency—especially in renewable adoption, but let's just say energy efficiency, even—it is very hard, even for market-level individuals—notwithstanding LMI consumers—they have other specific criterion that needs to be also met. It's hard to get—and we've seen that in examples where even if you're offering it “free,” that trust element that you just discussed—it's difficult to get folks. So, how do we change the business-as-usual paradigm such that LMI consumers can have a better trust element? At the same time, research also shows that it's impossible to expect LMI consumers are gonna pay their way all the way to that resiliency framework that we think that we need. If 50% of that population represents LMI consumers, how do we manage it so that—as we said—talked about trust as well as the affordability side of you can't expect LMI consumers to just simply take a contractual debt product or approach.

What can FFCAs do to address that? Can we have corporate intervention? Can we have some kind of incentivized value stream? How do we tackle some of those issues?

Paul: I can take a first shot, David. One, I should say—so, in our current role, I recognize that we do not—we're not out there trying to sign subscribers up, signing solar people. So, we're a little bit removed from that, and so I feel like it's really important, as a research project, to make sure that we're engaging with people that is in their space and they know how to address customers—potential customers—and try to build on that trust gap. So, one—that's just kind of like the qualifier that there's people that are accustomed and organizations working with customers, and we want to partner with them. The second piece that I was thinking about ultimately is that we just want to make it easier, you know, and if we could arm those people that are out there signing up customers easier through customer access or contracting terms or more affordability—all these sort of pain points—if we can kind of lessen those pain points to some degree, we're hoping that that gets to sort of the sign-up issue, the adoption issue.

So, you're right, John, that we've heard examples of energy efficiency. We've heard examples of solar where even if they're giving away some of the solar, it still can be problematic signing people up. And so, that is a problem that we may not solve in this one research project, but it's something that we also recognize—want to try to address through making it easier on some level—some small piece of that.

John: So, in your engagement with folks—I understand you have set up an advisory council and you've discussed some of these ideas broadly. What's the feedback from folks in the field, whether there are NGOs involved, whether there are folks working in LMI communities or technology? What's the next feedback? And can you also then show some examples—talk about some examples of like, let's say, FFCA Lite—like, things that have been tried and have been proven they bring benefit?

Paul: Yeah. You want me to do that, David, or –

David: Well, I'll just start and then, I'll let you –

Paul:Okay. Perfect. Okay.

David: – take it home. I think generally, people are supportive, but I think people want to make sure that every—all the stakeholders are at the table because each provides a unique perspective and that, you know, just talking within the solar community is not gonna solve all these issues. You need, as Paul said, developers. You need experts in the LMI space. You need a whole group of folks.

But people we've talked to have been generally supportive of it. They've also said that—look, you know, there are problems that all customers face. So, you know—and that is not unique to LMI customers—that make customer acquisitions hard. And, you know, we're probably not gonna solve all of those, although hopefully, some of the products will be helpful for all customers. But there are systemic issues that sort of we have to deal with, just such as having 3,800 different jurisdictions out there in the United States with all different rules.

It makes it hard to have a sales—pick one sales pitch out there. It's hard to explain some of these things. So, some of those things we're not gonna get around, but I think there are plenty of examples of LMI-type products or products that we think might work within the LMI space. Paul, you have probably some great examples that might –

Paul: Yeah. And I would just say, at a high level, the feedback we've gotten—a couple of things is people are interested in different ideas. So, we've kind of come up with some basic ideas and people tend to sort of gravitate, I think, to different ideas. And two—there's really interest in how do we get from where we are now to there—point A to point B. And so, that's what we're working on—trying to roadmap that.

But we also say that none of these are—these FFCAs, which I'll show here in a second, are—don't have examples in other industries or other asset classes. So, it's not like we're starting from scratch with never done this before. It's just never been applied to, I would say, solar specifically. So, it's—there is a framework out there. And maybe what I would do—I just though, since we have a website and this content's gonna go on our website, I'll show this little diagram that I use to help explain examples of these FFCAs. Can you all see me or my screen?

David: Yep.

Paul: Cool. So—and I'll just take maybe 2 minutes to explain. These are just flexible FFCAs. We kind of use that as an umbrella term to describe these product innovations. And one of the first questions we get is, “Is this a household or this a utility-scale project or is it community solar?”

And the ideas is that it can encompass any of these and you might have different FFCAs for different applications. So, we haven't really defined that. But going counter—or, I should say, we haven't really limited ourselves to just one application. But, going counterclockwise, we came up with four examples of FFCAs, and these are described on our webpage. But also, I'll talk through these in sort of examples that we've came across. David alluded to portability of a contract or a product.

So, we've seen and heard quite a bit of interest in this across utility districts—particularly if they're within a state or some ISO territory. And the example we use here is cell phone number porting used to be quite a big deal and now, it's commonplace to bring your cell phone number through contract with you. So, that application could help, I think, for the solar product space as well. One—another one on the lower right-hand corner is this sort of fungibility aspect—that it's investible. And so, the way I think of this is if you had a solar contract and if you had some savings and it accrued on your card, perhaps that card could be additive, so it could be matched with certain product.

So, I was thinking like, online education or even roundup programs—point-of-sale roundup programs. So, somehow, getting jobs—to your point of sort of adding more value to the product space. So, we think of this as a transactable product idea. In the lower left, the one that I'm really excited about—I'm excited about all these, but really thought a lot about—was uncoupling solar from where you live to where you work. And really, if there's a way that we could add solar as a standard employee benefit or sort of access to a solar programs as a benefit.

And to me, that's interesting, because from them, you're adding the sort of—the corporate investment in that product that wouldn't normally be there. And so, as David mentioned, this is—they do this already for health care transit, other types of standard employee benefits—could we add solar to that space. And John—oh, go ahead.

John: No, no. Go ahead. So, energy security as a basic benefit or right to have that.

Paul: Yep.

John: Yeah. Okay.

Paul: Exactly. And then, one that I think you and I have had a lot of conversations around is sort of the peer-to-peer aspect and how did we make this sort of a transactable product from one customer to another. That's probably the most technology-complex, but one that could—you could really see like, multiple, multiple applications of that. And examples like, you know, you can transfer car leases, you can—all kinds of sort of lease transactions—to blockchain implementation of energy trading from one household to another.

John: Right. So, digitalization of benefits and resources and kind of the whole process. So, I see that there's a slide three project plan right there up on your screen. Can you go through that project plan—like, where we stand right now in this whole FFCA process? What is the DOE's expectation in there? What's the timeline that we're thinking about?

Paul: Sure.

John: And then, we can kind of talk about maybe how folks can—organizations can get involved with NREL on this project.

Paul: Yep. David, do you want me to do that or –

David: Sure. Go for it. Yeah.

Paul: So, I would say we're kind of like, right in the—so, we've—as you mentioned, we have an advisory council. We've put together our thesis as we've described. We're really assembling these panel of experts, a coalition of experts. So, I would say we're kind of halfway in between this sort of second and third step here. We are—one of the big areas of effort is kind of likely to be virtual in the next few months; gathering thought leadership forum to discuss and kind of figure out road maps of how to both focus our FFCAs on which ones—one or more—that are really, we think, the kind of quick wins or ones that are the highest potential or most adaptable.

So, kind of focusing those and also putting together a plan of trying to implement those. And so, I would say we're right—within the next 3 to 4 months—putting together our first thought leadership forum, and if you're interested, that we'd love to have your participation. And shortly after that, we're going to be trying to—doing some sort of proof of concept of these ideas. And so, that's gonna be really translating ideas into action and products, and so, that's over, I would say, the next year or so. Does that give a good high-level view, John?

John: Yeah. Yeah. So, on the previous slide where you talked about kind of the conceptual framework, obviously, there's a lot of broad ideas, macro ideas. There are some that have deep impact on the regulatory framework, as David alluded to—the thousands of different jurisdictions. What are the kind of plug-and-play products that might come out of the 2-year process?

And then, as this effort then transitions to more of a—I guess, lack of another word—permanent domicile, where more research and other can get carried on down the road—I mean, in a nutshell, what can you deliver over the next 2 years? And then, where do you want to leave this project so that it has kind of the future growth approach? Because some of these—you know, like you said, cell phone transfer approaches and portability—I don't know how you're gonna get that taken care of in a couple of years.

Paul: Right.

John: Might be a much longer process. David, do you have thoughts on that?

David: Sure. Yeah. I mean, I think developing a proof of concept would be a big win for us. Having something that can be a plug and play that either businesses or jurisdictions can see sort of this fully baked concept and say, “You know, let's try that.” Particularly for—there are a lot of jurisdictions in these times that are ramping up solar portfolios, solar initiatives, so that they could sort of take these and sort of just plug them into their existing process. So, I think that would be a big one.

I think you're right—I think it's gonna be a journey and I think if we can martial the right folks that sort of get interested, can provide the feedback and realize that this is gonna be a process that will sort of continue to be annually engaged in solving this, you know, I think, having that group will be also a success for us.

Paul: And maybe I'll just add a couple things, David. Two things I was thinking of. So, right, it's gonna be a process—a long process. Probably longer and more complex than this process. But some concrete examples of steps we can make are if you think about the portability idea, one of the ideas we had talked about was, “Well, you want to make the contract portable. Who are the parties that need to be—or stakeholders that need to be—a party to that agreement?”

And we developed the rough framework of a contract. What are the contracts that would have to be—or even the terms that are within that contract—that would be included in sort of agreement—sharing agreement? And so, if we could get to the point where, “Hey, here's a template” or “Here's a first pass at this portability agreement—memorandum, MOU,” I don't know, but something like that to kind of take those first initial steps of portability. A second example might be the corporate benefit. There are examples of companies offering a solar benefit. And so, could we take the lessons learned that they developed and put them into a 10-step process that they went through to offer this—getting HR approval, getting finances, estimates of costs—all these different steps that they had to take to sort of implement this as an actual program and document those and put them as a sort of “How to” or road map for the corporate program.

So, those are examples of like—examples of plug and play, developing resources that other entities that can plug into their systems, their models, and use to advance the concepts.

John: Fantastic. So, Paul, do you have a link that folks can follow to get additional information on maybe NREL's website and how they can maybe express interest, get in touch with organizationally? I would think that given the big movement now—especially on ESG issues corporates are looking at—and broadly, the financial sector and across economies, as well as how that fits into environmental justice and equality issues that are affecting LMI communities and at-risk communities, there should be a broad interest in developing a coalition of like-minded entities who are interested and want to participate. So, you know, what's your ask for organization? Where can they turn to for additional information?

How can they engage and hopefully volunteer to either participate in a pilot or even help sponsor and support a pilot?

Paul: Yes. The most important part—so, thank you, John. So, I think of it as the three Is, which are—we're really looking for ideas, interests, and initiatives to work with. So, ideas—if any of this has resonated with you around FFCAs—really excited about one or the other—let us know. If you're interested in being involved—like you said, John, to helping us think through the roadmapping, the kind of piloting phases, let us know.

And then, lastly, on the initiative side, we recognize that this is—there might be other initiatives that are working somewhat in parallel or similarly related issues that we should make sure we'd be talking to and potentially teaming with. So, you know, really just broadly expressing interest in those areas. To get in contact with us, it's Paul.Schwabe@NREL.gov or David.Feldman@NREL.gov. We'll put this link—or this recording—on our website and probably easiest to Google “Flexible Financial Credit Agreements” for the website. David, other ideas that—how others might get involved or—?

David: No, I think that's great. Yeah, Paul, you did an awesome—three Is. I don't think I've heard that before.


Paul: Or, John, do you want to –

John: Don't forget “ideate.” I think that was another I that he likes.

Paul: Oh, yeah. That's right. And John's been a great conduit to all three of those Is for us, so I'm sure he'd be more than willing to help connect us if –

John: Yeah. So, I guess when you folks can—when you post this up on your website, you'll probably put in additional contact information, and while David is coming up with his closing thoughts, Paul, maybe you want to share your screen with the NREL website that might have FFCA link to it. So, that might help folks—just to understand what they're gonna be looking at.

David, any closing remarks on this project and—you know, what you—where do you see folks getting engaged?

David: Sure, thanks John. I think there's—I think we've done a lot of research looking at some of these issues, and I think we've realized that we don't have all of the solutions. And certainly we don't have all the resources to implement. So we're just looking for different perspectives that would, you know, sort of help us more customers—more of America—to enjoy the benefits of solar. And this is gonna come from a stakeholder process, a lot of different folks are gonna come through. So if you have an idea, if you have a different perspective—love to hear it. And if some of the ideas that we mentioned seem interesting and you have a program that you'd—that you're starting, or that has the possibility of incorporating some of these things—we'd love to hear that, we'd love to be engaged and help you with that. So we look forward to working with folks and getting these things started and helping people.

John: Fantastic. So I just want to add to that—solar is just one kind of use-case approach, as Paul and David indicated. We expect FFCA concepts that are developed in terms of portability aspects, or shareability, or other equitable features that develop out of this to be—able to be incorporated into others—whether it is energy efficiency or other solar—recognizing that there is a need and a gap, and meeting the needs of LMI consumers. It's not all—doesn't all come down to low-cost capital or—it goes beyond that—sort of social structure element of it as well—and so I think it'll be an interesting development process over the next couple of years to see how we integrate all these elements into FFCA.

Paul, I see you had the website up. Do you want to just do final closing remarks, and we'll take it from there?

Paul: Yup, thank you John. And just again, we're—I think one of the things I talk about is, we're researchers and close to the market, but really this is going to be driven by a team of—so to the extent to that, people with—even if this isn't your core area of expertise—we'd love to hear from you—but you're just interested in it on—please let us know, and we view this as a team effort. So thank you to you, John, for your excellent hosting, as always, and looking forward to connecting with everyone out there.

John: Fantastic, well thanks to Paul Schwabe and David Feldman from NREL, Senior Financial Analyst, trying to change the world.

Thanks to the DOE for funding this project—


And thanks for including NREL—sorry, including NYSERDA, I forget where I work sometimes—including NYSERDA in the process as well.

Thanks again—

Paul: And thanks to NYSERDA as well.

John: We'll talk to you soon.

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