William Demas didn’t choose to work in renewables — at least, not at first. But as it’s said, “With great power comes great responsibility.” As one of the earliest analysts in the renewable energy sector, Demas has since taken on the responsibility of helping to push our industry forward, through the 2008 recession and now in the uncertain times of COVID-19 and broader social unrest.
In this interview, Demas discusses his unlikely entry into renewable finance, investment strategies, and a call to action to make our sector more racially equitable.
From a “happenstance” start to “turning it up” in renewable finance
Richard Matsui: You’ve had a longstanding career in renewable finance. Can you walk me through how you first decided to work in renewables?
William Demas: To be honest, it was happenstance. I graduated from Harvard in 2005, which was around the time of Facebook and all the big internet IPOs. I had some relevant work experience and decent access to Silicon Valley folks, so I pitched myself as a tech banker — a lowly analyst who was going to bring the Facebook IPO to Lazard. Little did I know that, one, an analyst doesn’t get a vote on what to work on, and two, that TMT wasn’t just internet IPOs but also included traditional tech like semiconductors.
The first project I got staffed on at Lazard was led by one of the senior guys that ran the semiconductor business and the telecom business. He had a vision to start the cleantech group at Lazard and said, “Will, I want you to be my analyst and help me put it all together.” At the time I said, “Why? I want to do Facebook IPOs.” But as an analyst I didn’t have a choice, right? I got staffed on that team.
One week later, I became enamored with it and realized it was a huge opportunity. From then on, I’ve been 100 percent focused on the renewable energy sector. It was a very fortunate happenstance.
Then I got a message from a recruiter about a private equity fund focusing on clean energy and thought, “How many other people out there are looking for a clean energy associate? And how many other people in the world are actually doing this other than me? This is mine.” I also wanted to move back to New York, and almost the day I moved back, I received an offer from Good Energies. At the time, it was the only focused cleantech shop, so it was a pretty incredible opportunity.
I was there for just about two years, through a period of transition. When I joined, it was all good days. Then the recession happened, and Good Energies quickly changed its business plan. Good Energies was backed by a European family that had historically been involved in much less volatile businesses such as retail and real estate, and when they saw the market contract and the valuations go south, they quickly unwound that platform. I was part of a number of people who were unexpectedly asked to leave — I got laid off.
I remember my colleague who delivered the decision to me saying, “we didn’t even know if you cared about renewable energy in particular, Will.” I said to myself, “you have no idea.” I remember that so distinctly. At that moment, I was determined that I’m not leaving this industry. I thought to myself, “I’m going to turn it up.” And that’s what I did.
Energy storage: Who captures value?
Richard Matsui: Where do you see relative value in the market?
William Demas: First and foremost, the holy grail in renewables has been contracted returns, and we are very much focused on identifying those opportunities within the sector. However, it is increasingly difficult in North America to find such opportunities. It is harder to find in the current market, but the right network and relationships to secure projects on a bilateral basis is one way we find value.
Additionally, as with any other industry, you have to continue to evolve and look for the next opportunity. I believe we can take the learnings of the successful decarbonization of the power industry to other verticals within infrastructure, and that opportunity is a big reason as to why I am excited to join a platform like Stonepeak, which covers all aspects of the sector, and not just renewable power. The entire grid is going to have to be reshaped, industrial processes will need to become sustainable and the way we move around will need to change, and these are opportunities.
Richard Matsui: That’s the perfect segue. In retrospect, the early solar investors look very smart right now. In his Solar100 interview, Jigar talked about riding the wave of cost of capital down for clean infrastructure. Should we expect the exact same trend to occur with storage? Where are the exceptions or nuances?
William Demas: You can’t think of storage as just a PPA or a traditional revenue contract. You have to think about a structure where you can deliver this really incredibly useful Swiss army knife of technology to the utilities for their benefit and have them pay you for it. As the commercial framework for battery storage becomes clearer, utilities will say, “alright, I’m willing to pay a lot of money for this contract because it’s incredibly valuable because in ten years my grid is going to be awfully difficult to manage.”
Neither traditional solar or wind investors nor the utilities have adjusted to that framework shift. Commercially, people have to get comfortable with the fact that storage is, for the offtaker, the utility, and for the developer, not just a simple PPA. We haven’t yet figured out a product that fully values all the moving parts of electricity generated, the ancillary services, capacity, and deficit, but once we do, or if we manage to get our heads around the multiple value stacks associated with storage and that they may not be able to be monetized simultaneously, these assets will be incredibly valuable. It’s going to take some time, but I think it’s slowly happening.
Richard Matsui: You alluded to a framework and I want to try to play it back to you: When I think about wind and solar, it’s really an exercise in discounted cash flow modeling. When you’re describing how storage is a different mental framework, does it parallel real estate in that each asset should be viewed as a call option? What is the right mental framework here?
William Demas: You can enter into what is basically a toll agreement with the utility. Like a co-op, they have the right to use the facility when they want to use it and they will pay you a fixed rent every month to have that available. But, when that utility is not calling on that battery, it still has a ton of value for other reasons. You can do energy arbitrage, ancillary services, and monetize that. You can build a battery in Washington and monetize in California. The issue is that those cash flows are not really contracted, maybe it will be in the future, when people understand the value, but right now these are just markets that are traded real-time, real-time ancillary services.
As an infrastructure investor, the struggle is that I’m used to telling my LPs that I’m the best in 20-year contracted cash flows. But number one, if I do that for ancillary services, I’m going to get paid nothing. But it’s valuable, so I need to be able to understand that, even though it’s kind of hard to put that commercial product into a fixed contract because it’s usually unpredictable and very hard to quantify the value at that specific time for the utility. I don’t have the answer, unfortunately, but I think these assets will feel merchant compared to solar. I think people see merchant as such a four-letter word that they don’t really take the time to understand the economic value proposition.
Fundamentally, you can either give up all your value to your utility — who will undervalue the asset tremendously — or you can take on an active management strategy and optimize as you go. I’ve seen this play out at Advanced Microgrid Solutions and see this is the foreseeable future of energy storage, versus contracted revenues.
Future of the industry
Richard Matsui: From now into 2021, we’re going to be asking all the leaders in the Solar100 series about racial equity in the solar industry. The thought is that the solar industry is of course important because of climate change, but it’s also important because of jobs — there are a lot of people who work in this industry or want to work in this industry. As a respected solar veteran, I’d be happy to have you kick us off if you’re game.
William Demas: Definitely.
Richard Matsui:: We’re in a moment of broader public protest and change. One, how does that impact, or not impact, the solar industry? And two, what role should the solar industry be taking in this time?
William Demas: Those are very relevant questions. I think for me, one of the biggest questions of this current social time is: Why aren’t there more people of color in this industry?
I take some responsibility for being somewhat complicit; I’ve been around the sector for a while and have not spoken about this more. It is a shame that the solar and broader renewable energy sector look largely homogenous when it comes to race.
Part of the problem is that because of circumstances in life, a lot of people of color can’t take much risk. So they end up going into law or into medicine — professions where you can work hard and get a pretty stable job, everyone recognizes what you’re doing, and it’s clear you’re going to be able to be financially independent. There is so much new opportunity in the renewable energy sector, but there’s also been more risk. As a result, it doesn’t attract that disenfranchised talent that other fields like law and medicine attract.
Moving forward, I’m committing myself to establishing a senior network of people of color in the renewable energy sector. First and foremost, I want this to be a resource for one another, but I think it’s also important to show that there are people of color doing this work, and that people who look like you can and are flourishing in this sector. This is not just a flash-in-the-pan opportunity, but rather, a stable, very sizable industry in which people of color can build a good career. I think more awareness of that will go a long way.
Richard Matsui: That’s an incisive observation. When you and I started in solar 15 years ago, solar was fundamentally an uncompetitive energy technology. Because the industry became so price competitive so quickly, I have forgotten that the industry was tremendously risky. So of course, what does that industry attract? It attracts people who could take that risk.
Are there people or groups in solar that you think are modeling the kind of actions that the broader industry should be considering?
William Demas: Over the last few months I have been encouraged by the genuine focus that many people in this industry have had on the issue. However, we have a lot of work to do still. I have been speaking almost daily with people in the industry, including other people of color such as Brandon Martin and Richard Ashby, and we have some concrete initiatives and platforms under planning that we are looking forward to sharing with the broader community soon.
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