Financing Platform Opens the Door to Solar Ownership — Episode 214 of Local Energy Rules

Bracken Hendricks:

What we’re seeing right now is that we’re transforming the total economy. So there will be hugely productive new economic benefits flowing from this work on the backend. But the barriers and the transition costs and the structural inequity and all of these challenges on the front end are also very real. So with trillion dollar new capital investments, we will end up replicating the same structural inequalities and harms that are embedded in the current divisions of wealth and poverty, if we simply just throw new money at the current structures without trying to deal with some of these structural challenges,

John Farrell:

The Inflation Reduction Act is opening the financial floodgates to support a wide range of clean energy deployment. But how do we focus those funds on projects that build wealth in community, especially in historically marginalized places? Joining me in April, 2024, Bracken Hendricks, co-founder and chair of Working Power, explains how his organization jumps right into the trenches with community-based projects, helping them retain ownership and the financial benefits of clean energy investment. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Welcome to Local Energy Rules.

Bracken Hendricks:

Thanks so much. It’s great to be here with you, John.

John Farrell:

Well, I wanted to start off just as I do with many of my guests, by asking what got you into this work. You’re at this interesting intersection of equitable clean energy development around things like community solar, but also putting together the financial models and the financing, which I admire very much knowing the challenges and complexity with that. How did you get here?

Bracken Hendricks:

I guess going way back, I’m trained as an urban planner, and I’ve always been interested in how things get built in places and how they could get built better to build stronger economies, more justice, more community engagement, just help people live healthier and more thriving lives. And from that perspective of place-based work, I got very interested in climate and environmental issues as an organizing principle that could help break down barriers and get people working together towards innovative solutions and new sustainable approaches to building. And spent a long time working on policy, federal policy, political and educational change around climate. But it became really clear that things boiled down to how money flowed and how investments flowed and how those investments hit the ground. And it just became less and less satisfying to be engaged at a kind of rhetorical fight around federal policies when all of the solutions were going to unfold in communities and through economics.

So I got very interested in that. Began working to look at how large institutional capital, institutional investors, could actually be part of building the bricks and mortar of clean energy. I was involved working with labor unions. I built something called the Apollo Alliance that was an early labor environmental coalition, and it was really clear that the clean economy could be a tremendous source of jobs and business and new investment and vitality at the community level, but figuring out how to get those dollars to flow is hard. So in talking with pension investors, looking at workers deferred wages and how they could be part of the solution, there weren’t a lot of ways to put scaled dollars into pools of clean energy assets. So began working with the District of Columbia. They wanted to create an energy efficiency program, and we started the company Urban Ingenuity.

My partner Ian Fisher and I had both been working on the American Recovery and Reinvestment Act under Obama. We had an opportunity to build an energy efficiency financing program for commercial buildings in Washington DC. We ended up building what’s called Commercial Pace. It’s a tax secured financing structure, built a program, it’s secured through taxes, and we started touching a lot of buildings and a lot of building owners, but it was hard to get those projects off the ground and hard to get them funded. But we ended up building DC PACE programs, scaled it up to now over a hundred million dollars. This floated into a lot of small energy retrofits, electrification, solar, weatherization, a range of different improvements, and we got very, very interested in how to scale more broadly, especially on clean energy. And it became clear to us that solar and particularly community solar offered a really interesting opportunity.

It’s a little bit less policy dependent than something like PACE where you need enabling legislation in just the right way at the local level. But the way solar deals work, there’s generally a tax equity investor, a tax somebody, some big corporate interest is making those investments in order to get tax credits, so you have to have a tax appetite. So we started working with affordable housers, nonprofit folks doing community-based development, but they couldn’t get the benefits of those tax credits. So we put together a model where we could bring community-based nonprofits directly into ownership, monetize all of those different incentives and the tax incentives and bring them capital. And it worked and it worked really well, and we had a lot of interest. We had a lot of growth with nonprofit, affordable housing and faith-based partners, and we started working with environmental justice partners and seeing that if you took these assets that could generate new cash flows into communities and bring the community partners directly into the ownership, they could have visibility on the cash flows, they could have accountability to make sure that their vision, you mentioned energy democracy, to make sure that they’re really driving it and calling the shots and understanding the true economics of the project and the real wealth that’s being created.

And we found that most of our community partners were being presented sort of the language of cooperative ownership and the language of participation, but without really deep structural participation in those economics. And so we built what has now become working power and we’re scaling in multiple states. And it’s a model to kind of flip the power of these development projects so that the community is in the driver’s seat, they’re in equity ownership, they’re entitled to full cash flow, full transparency on the cash flows, and they generate a lot of community-based wealth. And one thing that’s really been fascinating and exciting has been all of the tools that have been brought online through the Inflation Reduction Act, under the Biden administration, all that the IRA policies do is accelerate what we can do with community-based ownership. There are new ways to get communities into equity participation, help them directly monetize those tax credits. There’s new adders to the tax credits, so you actually get more benefit if you’re serving affordable housing or paying living wages with union jobs or serving an energy dependent community or engaging tribal ownership. A range of things can all generate more economics from these community-based assets. So it’s a really exciting moment for figuring out new business models and getting new people in as owners in the clean economy.

John Farrell:

I would love if you could just talk a little bit about how this financing challenge that you were trying to address has often been one about scale. I guess could you talk a little bit about what has the broader financing community been traditionally looking for and what do communities usually have to offer? What has been that gap then? I guess you already mentioned the IRA, which is great because I think that helps frame this for people of what’s at stake here as the opportunity to tap those IRA benefits if we can close that gap. Is that right?

Bracken Hendricks:

Yeah, absolutely. So figuring out how to get the capital market to scale financing solutions is hugely important. These regulatory tools are very important to shape the market, to push utilities, to really look deeply at clean energy and efficiency and electrification, but market barriers, it is going to be trillions of dollars of capital investment into new infrastructure. And a lot of that is going to flow through commercial debt, through private investment, through economic development, through building owners investing the properties that they own and manage. So the policy is really important to jumpstart these market transformations, but they really do have to move through the market. And I spent a lot of time in Washington and trying to move policy on Capitol Hill, and I think for too long the environmental community focused on making it expensive to pollute, and it had a perverse outcome, which was a lot of focus on the pain and the cost and less relative exposure and focus on reducing risk and improving yield by building really smart green efficient assets.

So the financial community is definitely starting to see that the clean energy industry can be lucrative. It’s an important part of our energy mix. Wind and solar and batteries are growing faster than fossil fuels in most places at this point. But when you get into this community-based opportunity, the really finely grained stuff, the projects that are hitting the ground, there’s a lot of discussion about how community-based reinvestment through climate resilience and electrification and decarbonization and how that can start to heal the fabric of communities, reversing redlining and exclusionary practices in a history of economic development that was racist and exclusionary. There’s a lot of discussion about how it can generate really meaningful new cash flows for small women, minority veteran-owned businesses for green jobs, for local folks, union workers, but some of these projects we need policies and we need sort of programmatic solutions that are going to really help move money into these kind of community-based assets.

And what we were seeing at Working Power was that left to its own devices, utilities and scaled financial partners were likely to build a lot of desert solar and utility scale wind, but it was these central projects that are getting so much attention with union jobs in black and brown communities, frontline communities, they were a little bit harder. And so when we think about what some of those barriers are, they’re really just kind of in the structure of how wealth is distributed today. You have a community based nonprofit in a low income community, there’s less capital available, and it’s also, it’s an expansion of what they’re doing. They’re not a commercial developer. They don’t have the bonding, they don’t have the deep balance sheet that can underwrite large pools of debt. So many of our partners ranging from community organizers for health or clinics or daycare facilities, women’s shelters, union halls, there’s a lot of rooftops, there’s a lot of control of physical assets and frankly, folks who are paying energy bills, but they didn’t have the deep pockets or the immediate resources to be able to do the things that are required to take on debt to backstop various forms of credit risk or execution risk associated with financing.

So they were providing to these community-based projects, many things that were incredibly valuable, organizing and aggregating customers to receive the clean energy, getting site control for rooftops, putting projects together. Many of these community partners are very skilled organizers who are really excellent developers of community-based projects, but it was the lack of that financial capacity that meant that they would put a project together, but they would have to kind of reinvent how the debt and the equity were coming in. And then they’d get a year into a project and it was time to make a 2 million deposit on solar panels and they wouldn’t have the access to credit, the access to upfront capital. And in those pre-development and construction costs, they would end up being forced to sell projects to well heeled financial folks who could carry them over the finish line. And so all of this incredible sweat equity wasn’t valued and monetized and they would be forced to sell.

And it ended up with a net effect that it was somewhat extractive where a lot of wealth was being initially created in the community, but those cash flows went to financial interests outside the community. So what we’ve built with working power is call it a platform or a financing facility where we provide credit guarantees, we provide legal documents to cut the cost of early stage development, we provide clear access to well priced capital debt and equity, and then we also value the in kind or even the direct financial contributions of the community partners as equity so that when we build a new project, if you think about the org chart about how you build solar projects, there’s going to be a solar manager sitting on top of that asset owning it, receiving the cash flows, and we structure the community partner in as a co-equal equity partner, receiving the ongoing revenue that’s flowing from the energy produced by the project.

And at each of those junctures where the community might get pushed out of the deal disintermediated, if you will, we make sure they stay in the project, but we also do it in a way that shields them from risk because we’ve seen other projects where community ownership, yes, you’re getting the upside, but they’re also getting exposure to different types of risks. So that’s really what we focused on is how to keep the folks who are making these opportunities possible in the deal, let them participate in significant future revenue streams and shielding them from downside risk, execution risk over time. I mean, the good news is really doable and it’s really exciting the kinds new funding we can generate to build wealth and power and community engagement.

John Farrell:

One of the things I know I’ve heard is that a lot of the sort of traditional finance community will say something like, well, we like what you’re doing, but instead of 2 million of projects, we want a hundred million dollars of projects to invest in. And is that part, it sounds like you’re handholding to some degree with communities or working with them around pre-development and the development process, but it sounds like you’re also doing this other work of trying to pull together the financial resources so that these communities don’t have to themselves find 50 other community partners to get that scale that the financial community is looking for.

Bracken Hendricks:

You’re putting your finger on a central piece of this whole challenge of a just transition and accelerating a just transition, aggregating projects so that we’re getting meaningful capital flows. I mean, frankly, it is demanded by the capital market. If you want to get to efficient debt, you go to the bond market and you have a hundred million dollar billion pools of aggregated assets and you go to the bond market, you get very cheap debt, very patient, and that’s how infrastructure is funded, and that’s very different from these small $1 million projects, $300,000 projects or bundles of them for five, 10, $30 million. Those are still small in terms of scaled institutional investment. The reasons why the capital market really wants to see big, efficient pools of projects are very understandable. The transaction costs are lower. You can access really, really good high quality pools of investors, and then you can also de-risk projects across geography and across high volume.

We also really need scale, frankly, for the climate, right? We need to dramatically accelerate the rate of turnover of capital stock and really accelerate decarbonization, electrification, and the deployment of renewables. So there’s very, very good reasons to want large pools of efficient, well structured projects. However, at the community level, if you’re really trying to make sure that working people on the ground in frontline communities are part of this incredible multi-trillion dollar generational new wave of investment in the fabric of communities, that they’re truly ensconced in these waves of investment and not marginalized, you actually need to have mechanisms where these smaller community based projects can be more efficiently pooled and aggregated to reach that scale so that you’re not just building desert solar or wind on the Great Plains with high voltage transmission lines, and frankly, that decentralized, distributed, very smart network designed for the grid is actually better for the grid. Let’s get those renewable energies close to load centers in urban communities. It really makes a more stable and efficient grid to build it as a network that way. So it’s very good to have this fine-grained local projects.

What we’ve done with Working Power is to really focus on bridging this structural gap where you have a lot of community partners who are touching a lot of rooftops or brownfield sites where they could be building, but what they’re producing are slow, they’re kind of inefficient. They’re reinventing how to bring in capital, how to underwrite, how to structure in debt, how to build legal documents. And so the project pipeline is slow, episodic and frankly expensive. So our analysis was that with legal support, underwriting support, early stage, pre-development and construction capital, you could squeeze out a lot of those transaction costs and make these deals clean and low risk and high quality, investment grade, if you will, from an underwriting standpoint, so that you could add up lots and lots of small community-based solar projects and have these a hundred million dollars pools so they could access the best sources of capital at efficient pricing.

So that’s really what we’ve zeroed in on is answering the very legitimate, understandable needs of impact investors, mission-based capital, new sources of public funds, and also provide greater uniformity and streamlining and technical support to our community partners without pushing them out of the deal so that they stay in ownership. Even as we’re aggregating these larger pools, capital market gets what it needs, and with the more efficient capital, instead of creating excess profits to an investor, what you’re doing is creating new cash flows that go back to the community. And we can talk a little bit about what those numbers actually look like. They can be really substantial. They can be transformative in terms of building wealth and power at the local level.

John Farrell:

Yeah, I would like to come back to that. I wanted to ask you first though, if you don’t mind, one of the early successes for you was in DC where you had an interesting confluence of good policy, mostly local policy, but obviously the federal tax incentives are kind of baked in there too. Could you talk about how DC sort of made it maybe not uniquely possible, but much easier to do this kind of community supported financing and how that’s helped you build up capacity to serve other places too?

Bracken Hendricks:

Yeah, I mean, Washington DC is a fabulous example. Our company, our parent company, Urban Ingenuity, we founded it in Washington DC. We built it from creating the energy efficiency financing program for DC government. We helped launch the DC Green Bank, helped advance deep building energy efficiency programs, a very robust renewable energy policy. DC is a little bit unique because it kind of functions both as a state and a city. So when we created DC PACE, it was actually using a state energy program grant to build this energy efficiency program. It’s actually, I think DC is as big in terms of population as Vermont or South Dakota, so it kind of functions as a small state, but it’s a great example. Also, it’s a majority minority city, right? It’s black and brown communities, working class folks. A lot of gentrification pressures, a lot of affordable housing challenges.

So when the political infrastructure of Washington DC wanted to take on climate and there was a really, really a deep commitment to building climate, it was through a justice lens right from the get-go. So it was tied to affordable housing, to economic development, to impacts on low income rate payers and to health – public health and asthma and all of these other community benefits that come from clean energy. And the District really supported a couple pieces of policy that we’re seeing as kind of best in class in a lot of other communities. I mean, this is not unique. A lot of great policy in California and New York City and Minnesota and Colorado, A lot of places, frankly in Texas, in DC, the first thing was creating a really aggressive renewable energy standard, renewable portfolio standard, which requires that the utility derive a known and growing percentage of its energy from a hundred percent zero carbon energy sources.

And that number grows to a hundred percent. So getting to a hundred percent clean energy standard on a certain timeline. And then Washington DC did another thing which said a certain percentage of that had to be from solar and from local solar in the Washington DC community. So they’re basically saying, to get to a hundred percent clean energy, you’re going to need a bunch of new investments, and some of those investments should be right here within our tax base. So that policy decision created the opportunity through working with the utility Pepco as a partner because they’re now buying all of those clean energy attributes from these projects. So it creates a renewable energy credit, which creates income that flows back to the solar project. So it made it very financially smart, it’s a very good investment to build solar in Washington DC because you’re getting these credits through the utility rate base payments from the local utility to make sure that they’re meeting their quota of locally produced solar in the District of Columbia.

So those REC payments, renewable energy credits are flowing back and they’re helping make it profitable to build solar on the ground. That created a new windfall back to Washington DC in the form of these sort of community benefits payments that flowed back in. And what DC decided to do was to create the DC Green Bank and fund a new instrument to kind of start funding clean energy projects and to create a rebate program called Solar for All, which basically prepays for clean energy. So if I have to build a $3 million solar project, I can basically sell my future stream of energy to the district as a guaranteed off taker, and they pay me a one-time lump sum upfront cash payment that cuts the total capital cost, and then that energy flows back to Washington DC and they just assigned it to low income folks in Washington to cut their energy bills.

So each of these things, strong renewable energy standards, creating predictability of incentives, creating green bank financing mechanisms to help fund debt at a lower cost, and creating new grants and incentives tied to the actual capital cost of building things that are also generating free energy flowing back to low income residents. Different forms of all of that policy ended up getting picked up and emulated within the inflation reduction act. So now at the federal level, we’re starting to see many of the same tools that we had as an advantage starting to do solar with affordable housing owners, with participatory direct local ownership with our community-based nonprofits. We can now do what we did in Washington DC as first as an experimental pilot, and then we realized we could scale it and we brought it to places like New York City, like Massachusetts, California, a number of places where there were already strong solar markets with stronger incentives.

Now what we’re seeing is that we can start to bring this into markets that weren’t in that first wave of solar leadership with a strong state and local policies, but we’re seeing real opportunities in places like Texas and Louisiana across the southeast, frankly, working with rural co-ops or going into the industrial Midwest in Michigan, Illinois, Minnesota, a number of places. But what you’re pointing to is really important. Policy matters, local policy and local incentives, state and local incentives allowed that first wave of leadership to happen. But now with this incredibly important investment led in clean energy deployment strategy that this White House and Congress have supported, we can really start to think about doing this nationally. And I mentioned earlier, for decades, we focused on making it expensive to pollute. Now for the first time, we’re really having a rigorous conversation about how do we make it cheaper, easier, and faster to do the right thing and build a resilient, thriving, clean energy economy that invests in people and strong communities and local businesses and more broadly shared wealth and prosperity. And that really is the promise of the transition that we’re all embarking on right now as a country.

John Farrell:

So this is so interesting because I know the DC Solar for All program, with that upfront rebate in the federal tax credits, you could potentially build a project where there was almost no upfront cost to a community to make a solar investment. But correct me if I’m wrong, the IRA will do a lot of that work in terms of expanding the tax credit and as you’ve mentioned, it has adders for things like prevailing wage, for citing in particularly environmental justice communities, et cetera. Can you talk about how you see this model working in places like Texas or for example, or I can imagine, that don’t have as supportive of state policies or local policies? I’m also curious, I think you’ve mentioned that you have worked with some folks in the philanthropy community. I’m kind curious what role that they’re playing and how they’re interested in this.

Bracken Hendricks:

Yeah, there are sort of two questions in there that are closely related, going to new markets and kind of what are some of the challenges and what are some of the opportunities there and what are some of the tools that are unlocking that? And then is there a role for philanthropy within this transformation and in unlocking these projects? So first of all, just to kind of review some of the tools that are available that are coming online under the Inflation Reduction Act right now, we have these new institutions being created, this sort of green banking mechanisms under a policy called the Greenhouse Gas Reduction Fund being administered by the US EPA, and we have billions of dollars flowing into low cost debt that will be available at the community level. And it’s very similar to what’s happened in the past with affordable housing and community development financial institutions, some of these local lenders and partners who really work on the ground to support strong community-based assets.

And really all that’s happening is we’re adding in clean energy as a new class of community benefit that really makes sense for public policy. So it’s very exciting. There were just recently a series of grant awards for money that’s going to flow into these new green banking institutions under the Greenhouse Gas Reduction Fund. There was also a program within it called the Solar for All Program that included a number of applications from community partners, local governments and others really supporting innovation, building new finance, deploying virtual power plants and smart grids, really kind of picking off some of these naughtier questions and really making capital available. So there’s a whole new suite of these solar for all grant recipients in communities of need all across the country. And interestingly, actually, a lot of that money’s flowing into red states. This is not a blue state or red state issue. A lot of it is flowing into rural America. A lot of it is flowing into Heartland projects.

There’s also a set of tax incentives that are very powerful. So solar has for a long time been funded through solar investment tax credits. They were quite generous. They were 30%, they went down to 26%, IRA bumped them back up to 30%. But you also have adders sort of additional tax credits if you serve affordable housing, if you pay prevailing wages so that union contractors or living wage jobs are not at a competitive disadvantage based on wage rates and benefits. If you serve energy communities, historic coal mining communities, or environmental justice communities that have been on the frontline of the historic fossil fuel energy economy, they get an additional benefit for participating in the next wave of investment. Native American Tribal communities. A lot of folks who’ve been excluded from past waves of economic development are really brought in centrally.

So those tax incentives are very, very powerful. But then this gets to your second question, which is what’s the role for philanthropy here? Because if you add these things up, they can be quite powerful. There’s a lot of economics, but even if you got a 50, 60% tax credit for a big solar project on tribal land, coming up with that remaining 40%, still no small feat. If it’s a community that’s deeply low income that’s seen an outmigration of industry and jobs and economic tax base and really kind of absorbed all of the worst impacts of the past waves of industrialization and capital investment. So figuring out structures to de-risk those early stage projects to bring in other sources of private capital and de-risk them and credit enhance them. You talk about crowding in private capital sometimes with public finance, you worry about crowding out private finance, right?

You don’t want to come in with really cheap public money and then nobody wants to lend because they can’t get, they’re competing with the public sector. But if you do it right, public investment can actually crowd in private investment by de-risking projects, by making them smarter investments, doing that early stage work to kind of build the market so that private debt and equity markets can come in and take over and bring it truly to scale at a level of volume that the public sector could never handle. So there’s a really interesting moment for philanthropies, for charitable organizations, for impact investors who really want to see this change and lean into it. They can make grants to community partners and they can also fund pools like with Working Power. What we’re doing is we’re building large pools of these well-structured projects, and we’re bringing in what’s called program related investment, PRI.

So it’s philanthropic money, but it’s tapping other parts of their endowment or their corpus in new ways so that we can bring new capital and still pay a return, but they’re more patient. They may have a lower interest rate that they ask or they may wait for a longer time period and use the slightly more flexible and patient money and use some of this grant capital to really prime the pump and get this pipeline moving aggressively. And so what we’re working, we’re currently raising a $50 million fund and what we want to do, that 50 million can then leverage like 300 to 400 million of total capital investment from that $50 million of philanthropic or mission oriented capital because it gets levered with other forms of capital. So you get a quarter of a billion dollars. You’re starting to talk about real project volume. As we build these pipelines at a certain point, as these greenhouse gas reduction fund dollars are starting to come online, it’s going to take a little bit more time for all of these public dollars to really start flowing into projects.

So our goal is to have really well underwritten large pools of efficiently, well-structured projects so that capital can really start to flow at volume. So there’s a kind of a virtuous circle, if you will, where there’s kind of a mutually beneficial role for early movement by philanthropic and impact capital to get started now and just really prime the pump with public sector resources starting to drive things to scale and really start to aggregate and define what this market looks like. And then the private capital market takes over and over time, you need less and less of these public interventions once you really have an efficient community-based industry, if you will, for supplying these locally owned, locally beneficial, community driven energy democracy projects. That’s what we see. If you look at the history of the last 30, 40 years of community development finance, you had nonprofit institutions charging in, you had folks motivated by poverty and inclusive prosperity kind of opening it up, but at a certain point you have huge billion pools of low income housing tax credits or community reinvestment opportunities, and you have the big money center.

Commercial banks come in and they’re like, yeah, we got to be in this market. This is a real part of the economy. It’s not to be overlooked. And so you end up with this very symbiotic, it’s an ecosystem really, where you have the community-based partners, you have community foundations, you have mission-based organizations, you have impact investors, and then you have different forms of federal, state and local public loan and grant resources in what becomes a trillion dollar, multi-trillion dollar industry to build and reinvest in just the fabric of our productive economy to make it more efficient and more truly prosperous. I mean, I think that’s where absolutely where we’re headed.

John Farrell:

This is super helpful for understanding kind of the macro level component of making this financing and development work.

We are going to take a short break. When we come back, Bracken talks about how the money works for a specific project, how Working Power aggregates projects, and whether the interconnection process has proved a challenge. You’re listening to a Local Energy Rules podcast with Bracken Hendricks, co-founder and chair of Working Power.

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John Farrell:

I would like to invite you to come back to something you had mentioned earlier about what does this look like for an individual community-based entity. I dunno, if you want to pick a particular project size like a megawatt or something and say, just walk us through how does Working Power help development that project and the financial relationship and then out of that project, what does the cashflow look like? What do the financial benefits look like for that community?

Bracken Hendricks:

Yeah, I’ll talk about an abstracted version of a project we’re building in New York City. It’s a strong solar market. You’re not fighting against the policy environment. It’s really clear how you build stuff, how you mobilize the various incentives and get things interconnected and built. But we solved a number of projects, a number of problems for a kind of a community-based developer that was interested in building a project on a local city owned rooftop, a little bit less than a megawatt, $3 million project, big capital need. They did all the hard work of securing site control from the city government, bringing its a membership based community organizing group, working on the ground in a Latino community, mobilizing partners to participate directly in ownership, but they didn’t have the capital to keep control of the project, so they were at risk of losing it because of that, the issue I mentioned, they had to make deposits on purchasing of panels.

They needed to guarantee debt. They really didn’t have the balance sheet to directly own it. So what we were able to do was really kind of help them structure the legal agreements so they didn’t get pushed out of ownership to provide that early stage construction capital, pre-development funds, put together a structure and then organize how the capital was going to flow in and then assist on building the systems for construction management. So it was really excellent kind of execution. And in that context, we’re doing a few things. As they stay in ownership, they’re not actually having to put the money out to stay in the equity because they’ve done so much value by getting the site control, by aggregating the offtakers. They’re partners in the co-development. So the first thing we do is we form a joint venture agreement so that they’re in the ownership, but then we manage these various types of risk and then by participation over 25 years in this, call it a megawatt project, it’s throwing off cash from the sale of renewable energy and electricity, and it’s also, it’s producing lower cost energy for their members.

So we are creating about a million dollars of cashflow of real direct cashflow back to the project partner, which is money that would’ve gone to a financial interest. Instead, it’s flowing to a nonprofit community organizer working on racial and economic justice and environmental justice at the community level. And it’s also throwing off about a million dollars of free power or reduced cost power, which is going directly to their membership base to enhance housing affordability because the cost of staying housed is rent and utility. So if you reduce the utility bills, you’re actually helping somebody deal with housing costs in a city like New York, which is no small feat with the rental prices that are there. Another thing that we’ve also done is to mobilize grant dollars and to put them directly in as equity. So when we put a capital stack together, we’re bringing in different kinds of debt and equity from different kinds of investors, and they got to get paid back.

They got to get a return on their money. So if we can get a grant from a philanthropy, if we could put in a $200,000 grant to basically displace another form of equity and make that a $200,000 equity payment by our community partner into the project, they could receive a five times return on their equity investment over time. So you could take a $200,000 of grant money, put it into ownership of this asset, and then give a million dollar payment stream back to that community partner because they’re owning a physical asset that yields cash flow. So you can create these $50,000 a year of just new money coming back that’ll pay for some form of mission-based activity. It might pay for childcare, it might pay for supportive housing for women in transition, might pay for, we have a couple projects we’re doing in rural communities where we’re dealing with food sovereignty issues and agricultural issues in an environmental justice context in rural America, which is really, really powerful work doing projects with labor unions, which are really gratifying.

I mean, I got my start in the labor movement and really committed that working people should be getting family supporting wages and benefits out of this clean economy. It shouldn’t be done on the back of working folks. We should compete to be efficient. We should compete to cut the cost of capital, but we should absolutely pay family supporting wages and benefits. So if you can bring a labor union in or a labor affiliated nonprofit, you can create, there’s one project we’re looking at very closely. We’re getting close to breaking ground on where we’re looking at building it under a project labor agreement. Basically a project labor agreement on the front end makes a commitment to how you’re going to treat wages and worker benefits within contractual pricing. And so you can actually build in a fund that’s flowing back to worker training. You can make commitments to hire apprentices into jobs that are created. You can make commitments to work with union contractors where they’re available. So looking at these kind of responsible contractual structures that have been pioneered within the labor movement really offer a wonderful roadmap for how to do community-based economic development, direct local ownership, and create sort of robust and broadly shared economic development that really creates wealth and really builds and rebuilds the middle class and communities that have been struggling. So it’s all about good jobs. That’s that’s a really exciting piece of this work as well.

John Farrell:

I want to go back to how you talked about how philanthropists could put in $200,000 and generate this long-term return that might be five times greater because it’s sort of interesting that they really have, whether they invested as a program related investment or as a grant, the ultimate impact could be the same. So if they do it as a program related investment, the funder itself is earning a return and then they have more money to grant out, or they can give it to a nonprofit organization that wants to do one of these solar projects, and it is a way to provide them long-term support that’s now off the philanthropist balance sheet. They’ve made the grant once, but that’s actually, they know its value is much more than that initial $200,000 because the returns are accruing directly to that recipient. So it’s sort of intriguing that they have these different ways they can do it, but ultimately, if their goal was to increase support for the organizations that they’ve been funding for the mission-driven work, they can do it either way and have a significant impact.

Bracken Hendricks:

It’s a great point, and I think if you trace it back to its root, a centerpiece of that is that we’re building productive assets. This is physical infrastructure in the community that’s generating something of real value, zero carbon energy, local economic development, construction jobs. It’s an asset that’s yielding cash flows. So there are opportunities to really leverage the market, but if it was easy, it would already be being taken care of by the market. Right? There are real structural barriers. There’s reasons why it’s hard for community-based organizations to do this work and to build these projects. So there’s absolutely a strong public benefits case. And I mean, what we’re seeing right now is that we’re transforming the total economy. So there will be hugely productive new economic benefits flowing from this work on the backend. But the barriers and the transition costs and the structural inequity and all of these challenges on the front end are also very real.

So with trillion dollar new capital investments, we will end up replicating the same structural inequalities and harms that are embedded in the current divisions of wealth and poverty if we simply just throw new money at the current structures without trying to deal with some of these structural challenges. And that’s what Working Power is doing. If you were just to make a $200,000 grant to a small community partner, they could do it, but they would then have to build this whole ecosystem of the capital access, the credit enhancements, the technical assistance, the legal structuring. So what we’re trying to do is to connect the community-based partners in ownership with the capital markets at a speed and a structure that they can scale, but really safeguard that ownership so that those mission-based dollars are flowing in and that those benefits accrue to the community-based partners, where it’s intended that it’s not creating a rent for some financial interest.

It’s not just creating excess windfall profits for somebody, or on the other extreme, it’s not just kind of chipping away at something so small that it can’t really scale. But I think your core point is a good one, that we’re trying to transform the market and there is a public purpose that really needs to be attended to get there. But if we don’t recognize that the real goal is to transform the macro economy, then we’re missing the point. So one of the things that I think philanthropic folks really would be well served by focusing on is how to protect their public purpose and safeguard deep community benefits through structures that kind of move into this middle space where you are trying to actually create additional private sector leverage and you’re trying to bring in more expansive activity. And I mean, to my mind, some of the most exciting work going on in the US economies actually happening in this very interesting middle space where we’re trying to open up new markets that are underserved for environmental attributes for meeting the needs of folks who’ve encountered systematic underinvestment and really make that the epicenter of this historic transformative renewal.

And I mean, I just keep coming back to, without making this a partisan or a political thing, but I do think that the policy vision of this administration just deserves mention. The Inflation Reduction Act is, it’s the largest reinvestment in infrastructure and economic growth in generations. I mean, it’s on a scale of the New Deal or the Great Society with $369 billion, and then you put the CHIPS Act and the infrastructure bill, you’re talking about over 400 billion flowing back into communities and infrastructure, that’s historic. And then to link it to meeting these competitive challenges around climate and climate resilience and new competitive opportunities like electrification of cars and building a domestic supply chain for batteries in the U.S. And all of these things mean, or even things like just local infrastructure, like getting rid of lead water mains in cities like Flint, Michigan, any major older city. I think history is going to be kind to this administration and also to the bipartisan folks who supported a return to doing big things and making public investments into infrastructure that leaves the economy stronger, really thinking about the difference between spending and investment and investment yields a return. It creates dividends, it builds a legacy. It makes the country more prosperous after it happens. It’s not just going on a bender and waking up with a hangover. You’re actually building the future. It’s taking out a college loan or a mortgage.

John Farrell:

Bracken, just one kind of wrap up question in terms of how Working Power does its work is how do you find the community projects? Are they coming to you and saying, hey, we are looking to do this. Can you help us? Are you out there scouring and finding projects that are in development or reaching out and saying, hey, we can help with this? How do you get together those projects to participate in this pooled financial system and pre-development work that you provide?

Bracken Hendricks:

Great. It’s been kind of remarkable. We started out with a couple projects, testing whether we could do it, seeing if we could work with multiple owners and roll a lot of small rooftops together into one bundle, and each project was a really big heavy lift, and we were kind of doing it on a bespoke one-off basis and building the system. Then we tried to really turn it into a platform and see if we could do it more systematically, and we built working power and we really kind of refined our processes to really support this and really make these projects more systematic. And what we found is that just through word of mouth, through, the talking the environmental justice community about working at the speed of trust, we built really deep trust with community partners. And so with through word of mouth and through trusted EGA Labor community networks, what we found is that projects have just started coming to us because there’s a need for this suite of tools.

So we’ve gone from a couple million dollars of projects, I think our pipeline’s about $60 million worth of pipeline right now. We’ve gone from seeing projects that were 300 kw. We can still bundle smaller projects, but now we’re seeing 5, 6, 7 megawatt projects coming at us, and we’re starting to be in more places. We’re starting to work with folks in new states in both rural and urban communities, and the latest thing that we’re really trying to do is systematically enter new states because every state has its own set of policies and incentives. So we’ve got a strategy for the Gulf Coast, the Gulf South for the southeast, for the industrial Midwest, great Plains. We’re kind of looking at different, but it’s going to be a state by state strategy. But the other thing that we’re doing is we’re building this larger fund, the Working Power Impact Fund, where we’re using program related investments and other forms of capital to really start having a war chest because what we’re finding is that organic growth is really accelerating. There’s just tremendous interest on the ground, and so we’re just trying to be ready for that and just get more systematic. But that’s what we wanted. We wanted to scale and we wanted to find efficiencies, and we wanted to bring large pools to the capital market without sacrificing finely grained community-based ownership and energy democracy. So that’s been really gratifying.

John Farrell:

I wanted to ask you also about the potential barriers here. So we know that a lot of the historic investment in the electricity system has been oriented toward large centralized infrastructure. We know utilities have incentives financially to prefer that kind of development or even to own it themselves, and yet they’re in control of the interconnection process for these smaller projects. So I’m just kind of curious if you have encountered issues around that in the work that you’re doing or if you have, hopefully not encountered barriers, but just curious if there has been situations where you have noticed or had projects run up against that challenge of getting plugged into the grid as a part of wrapping up that project development process.

Bracken Hendricks:

So interconnection is really important and it plays out in a bunch of different ways. We tend to be working on interconnection of small and mid-sized projects, a couple megawatts or less, so we definitely encounter interconnection costs. You might have to have a substation upgrade, and that might be half a million dollars. That definitely affects project level economics. It affects permitting. You’ve got to get really technically good at working with utilities to get into the interconnection queue, to do the permitting, to look at the studies to figure what those costs will be and build them into your projects, and that is a place where a lot of these smaller community-based projects can get slowed down. We also have found that in that interconnection, there can be real benefits. We’ve built microgrids where we’re building in grid connected energy or storage that’s actually enhancing the value of the local grid network, and sometimes there can be positive economics from those.

Thinking about the network effects of your installation, if you’re really trying to think about it as an islandable microgrid can be very exciting. We’ve done that in a number of places, so those would be two key places. There are other issues of interconnection when you get to the larger projects. It would be appropriate to kind of give a shout out to Sage Development, came out of Standing Rock Sioux Tribal Initiative to invest in tribally generated wind. It’s a very, very large wind farm and a number of tribal governments have tried to do large institutional scale investments and some of those issues about how you’re getting into the interconnection queue when it involves hundreds of megawatts, when it’s a power plant size intervention, when you need long distance transmission lines. Those questions about the incredible risks associated with getting into those queues with spending often for many years to build out and design the project.

The pre-development are of a different order of magnitude from a community-based small scale solar project or solar and battery project. There’s just been some tremendous activity from some tribal energy partners and from others who are kind of looking at this sort of larger scale issue and those interconnection issues dealing with the power marketing authorities and how you actually get into the wholesale market and long distance transmission issues can be very challenging, and there is a need for thinking about where the system creates structural barriers for high quality projects and how the system could be made more equitable and kind of bring folks into the process. I call them out, but they’re one of many who’ve been kind of at that. At Working Power, we’re more looking at distributed community solar, but in every project you are building something that has to interact with the grid and perpetuate grid stability, and it’s got to be safe. It’s got to be reliable, it’s got to cut total cost of operations. You’re going to have to bear some of the marginal costs. There’s a lot of serious electrical engineering work for substations and step-up transformers and what type of a feeder line you’re patching into and how it relates to the rest of that local network. It matters. It matters a lot.

John Farrell:

I’m so glad you called out SAGE Development. We actually just published a podcast with Joseph McNeil to talk about that project and the challenges that they’ve had and been overcoming with the large scale development, that was just published here in the last week of April, episode 208. So folks are interested in hearing that. I wanted to just wrap up then by saying that listeners of Local Energy Rules range from climate policy advocates to some elected officials, often at the local level, including philanthropists. What can they do that might be helpful? It sounds like if they know of community-based organizations that want to develop projects, trying to put them in touch with you could be helpful, if we know philanthropists that have been saying, hey, we’re trying to look for opportunities for program related investments. Do you know folks, we could put them in touch? Yeah. How could folks be helpful in what Working Power is trying to do to build this platform?

Bracken Hendricks:

Yeah. I mean, I guess the first thing is this is an ecosystem, right? There’s no single solution and there’s a movement here to do this, and there’s a lot of folks who’ve been putting in the time over decades. Working Power is one of those partners, and we’re really honored to be in deep partnership with a lot of others. I would say absolutely. If you’re a community-based organization, think about what rooftops you touch. Think about how you might be able to mobilize consumers and rate payers and aggregate their demand. You can push for policy change once you have a project. There are increasingly beneficial new resources coming online through IRA, whether it’s direct pay mechanisms to directly monetize these tax credits. Even if you’re a nonprofit, there are new sources of capital through community development, financial institutions and other partners. So there’s a lot of ways in, but I think for us, things get exciting once there’s a street address or a zip code or a specific place.

When you begin with a project, you can really do the work of turning it into an asset and then figuring out how to layer in ownership and benefit streams and community participation. If you’re a community-based foundation or a philanthropic partner, yeah, think about how you can use your grant making, your program related investments or even your full endowment to think about really standing behind this and making sure that community-based assets are really part of this solution. If you’re an impact investor and you have some money to put into deals, are there ways to use your contributions to a donor advised fund? Could you think about how a family office might play in this space if you have a chance to be heard with local policy? We’re doing a project right now with a low income, affordable housing co-op with 900 members. These are people living in a community and we’re helping them upgrade their heating and the health impacts of mold remediation, a whole bunch of other issues related to their energy system, but we’re also electrifying and creating resilience.

So in that situation, it’s a group of homeowners dealing with a direct need. Working power.com is how you can find us, but there’s a lot of others in state and local government, in local nonprofits and in community-based organizations, in climate justice and labor. So I think the first thing is just to remember that if you’re investing money, if you are making grants or giving away money, or if you spend money on utility bills or tax bills, you have an asset. So let’s think creatively about how to turn that into an investible project that’s actually going to build wealth and power locally and start turning all of us into collaborators in being part of the solution. Climate crisis is devastating. The history of environmental injustice is just unspeakably painful and cruel legacy of redlining and hardship, but the solutions are so exciting. Regenerative building systems, zero carbon energy, community owned assets that build wealth and job training and local business that reinvest in public benefits, that create these spillovers of health and belonging and a growing, thriving middle class and local small businesses and healthy children and aging with dignity and mobility. All of these things go together. We got to move out of these vicious cycles and start investing in virtuous circles and really kind of building a future together that’s worth living in. And if you’re paying a power bill or showing up at work, there’s definitely a way you can get involved.

John Farrell:

Well, Bracken, thank you so much for joining me to talk about Working Power and the way that you’re helping direct these resources and building community-based clean energy assets. It’s really exciting work.

Bracken Hendricks:

Well, it’s great to talk to you and I’m such a fan of Institute for Local Self-Reliance and all you’re doing, and really, you’ve been in the trenches on all of this work on energy and democracy and participation and ownership for as long as anybody in the field. So it’s an honor to talk to you and your audience, so thanks for what you do.

John Farrell:

Thank you so much for listening to this episode of Local Energy Rules with Bracken Hendricks, co-founder and chair of Working Power, discussing how his organization helps bridge the development and financing gaps to let community-based clean energy projects succeed. You can learn more about or contact Working Power at workingpower.com. On the show page, also look for links to an interview with Yesenia Rivera about the DC Solar for All program that helped build the Working Power model, as well as ILSR’S Community Power Scorecard, which explains which states have policies that better support community-based clean energy projects. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.