Episode 10 Transcript: Your Dollars, New Renewable Energy Projects, Everybody Swims

Molly Wood:

Welcome to Everybody in the Pool, the podcast for the climate economy. This is the show where we dive deep into the climate crisis and come up with solutions. I'm your host, Molly Wood.

In this week’s episode, we’re tackling two problems at once: how individual people can put their climate money where their mouth is, and maybe even make some money in the process, and how small to medium-sized renewable energy projects can get funding.

We know that arguably THE key to moving the world away from fossil fuels and toward net zero carbon emissions as fast as humanly possible is to deploy, deploy, deploy. We need renewable energy EVERYWHERE. Solar, wind, hydro, geothermal—all systems go.

This is construction. And construction requires finance. A specific type in fact, called project finance. This is usually a combination of debt from banks, upfront cash from developers, and loans from private investors who do it because a project has guaranteed cash flow, maybe because in the case of renewable energy, someone has already promised to buy the energy in a 10 or 20-year contract.

Shout-out to the good folks at Climate Tech VC, c-t-v-c dot co. They did a multipart newsletter series on project finance that I’ll link to in my newsletter at mollywood dot co. These are my kind of nerds.

But where project finance can really be a problem is for small projects. Banks and traditional investors often prefer larger projects with a proven track record. That means these small to mid-size projects can struggle to get funded even though we need all of them to have an impact on reducing carbon emissions.

That is where you come in. And where this guy comes in.

Will Wiseman:
My name is Will Wiseman. I'm the CEO and co-founder of Climatize. I am a big energy wonk and so my whole world is climate. Climatize is an easy and transparent app that allows you to invest in renewable energy projects with as little as $5.

This is where I should probably say that everything that follows is not investment advice. But it IS mighty interesting.

Will and his co-founder are young—he was a 30 under 30 about three months ago—but he’s worked in almost all parts of the renewable energy industry and has two master’s degrees, one in energy engineering, one in sustainable energy technologies. He met his co-founder while they were both at the Royal Institute of Technology in Stockholm.

I asked him why the obsession with renewable energy for fully a third of his life.

Will Wiseman:
So I have a very unique childhood in that my father is a marine biologist, and so that unique experience took us to very far-flung places and some of the most pristine reefs and oceans in the world. And so over my life, I have seen the rapid degradation of the oceans. And to me that was a deeply unsettling experience over my childhood.

As I began to mature and look at careers going into college, I was really thinking about the sustainability side and the impacts of climate change. At the time, there was a fascinating concept to me, artificial photosynthesis, that was the idea of kind of solar, but using it with ES and to be able to essentially create energy.

Clean water and sugars, essentially energy at the same time. And it was this fascinating concept. So from that, I pursued it into engineering. From there, I got into more of the true engineering life, working on projects, being one of many. And with those, I saw that each project was gonna be three or four years and.

It wasn't really the impact that I wanted to have over my career. So that was when I went and got my graduate degrees and really zeroed in on the energy engineering space, which to me is one of the most fascinating Rubik's cubes in the whole world. You have this intersection of physical constraints with the physics, the chemistry side of it. 

You have the economic constraints to be able to finance these projects and the competitive supply and demand considerations. There you have the geopolitical constraints of changing incumbent powers between petro states and now the new renewable energy world, and you have the social element of the political side.

Do people believe in this or not yet? And so to be able to look at it from those four facets and try and solve that problem, to me, it's just a very fascinating and inspiring problem to work on every day.

Molly Wood:
Yeah. Not, no small problems for you.

Will Wiseman:
No ma'am.

Molly Wood:
So, talk to me about how this became a startup. Certainly, you could have plugged away building renewable energy projects and you have taken this approach to start a company with your co-founder and also start a company that really is about, in some ways democratizing or potentially in all ways, democratizing access to project finance.

Is that a fair way to describe Climatize?

Will Wiseman:
Mm-hmm. Yes. Yeah. We want to try and make the everyday person, someone who's concerned about the future, we want to help them be active stakeholders in the energy transition, not just neutral bystanders. We feel that oftentimes people feel relegated to the sidelines when it comes to climate action, that it's upon the governments and the big corporations to make.

That change and we're not seeing that change happen fast enough. So really the aha moment for us and the story behind Climatize was when my co-founder and I were in Barcelona for the global climate strikes. There were over a hundred thousand people protesting in the streets. And this was just one of hundreds of cities around the world.

I have this vivid memory of standing up on this bench and looking out over this sea of people, and there was all ages and there was this hope and this motivation, and yet we had this sad realization that we would all go home and the next day nothing was gonna be different. 

She and I just saw that if our best option in this moment was to make a cardboard sign, there was a glaring problem.

So we really started asking everybody what it is that everyone from that crowd could contribute. From that, people kept saying, "Oh, well, you know, what if it was just a little bit of spare change or like, what if it was a dollar?" And so from that crowd, that was a hundred thousand people, if you did that every day.

For a year, or pardon me, for just that day, you would have a hundred thousand dollars and then if you did that for a year, you would have $36 million. Then if you scaled that to everyone, the 7.6 million people who showed up for those strikes, if they each pitched in a dollar a day, you're talking about 2.75 billion per year.

And we went, wow, that's actually a meaningful sum of capital. And that could actually represent a pretty substantial buildout of renewable energy projects, and that was just a dollar a day. You know, there's a lot of upside on that. So from there, that's really what we've been pursuing is how is it that we enable everyday people to be active stakeholders in the energy transition.

We look at climate change as one of the largest economic opportunities of our lifetimes. If people are excluded from that opportunity, then you're never gonna see the true momentum building necessary for us to really hit these scientific targets that we need to. We feel that it is a travesty that much of climate change is kind of, the narrative is much about sacrifice rather than opportunity. 

It's framed around "you need to fly less, you need to eat less meat." Those are very important changes in everyday lives, and I don't want to minimize those. However, the other side of the economic opportunity, the economic growth, the manufacturing capacity, new jobs, cleaner air, all of that side, I don't think that narrative is told quite enough.

We want to expand the access to that economic opportunity to everyday people and enable them to earn the benefits and the yield, the profits of the energy transition.

Molly Wood:
Right. Let's talk about, before I go there, then what made you decide on project finance? The problem you're solving for the consumer on the one side is access to action and a financial return on an investment that you're making.

On the other side, what was lacking in terms of project finance that this also solves?

Will Wiseman:
Yeah. So what we found is that there's a really acute problem when it comes to small project finance, and this is particularly acute below $5 million of renewable energy projects. That is really below the line that commercial lenders will often get out of bed. They're looking for those big utility projects out in the desert, and so many of these mid-cap project developers are funding their projects off of their own balance sheets.

What that creates is a very start-stop project development cycle where the developers put all their cash into one project and then they're waiting for the revenues to recycle back to them before they can ever go and actually now develop the next project. We want to help them accelerate that capital deployment cycle so that they can be developing and really building more projects.

Voice Over:
And Will says it might be kind of a better way for individuals to invest their values than they currently have available.

Will Wiseman:
From my point of view, I look at some of the sustainable investment opportunities. Now you look at ESG and it is more of a risk metric than it is actually investing directly into climate projects. You have all three environmental, social, and governance, and you don't have to score a hundred percent on all of them to be in an ESG index.

If you look under the hood of some of those portfolios, they're not exactly the most environmentally sensitive companies. At the same time, you're also investing in the corporate equity of those companies, not necessarily actually leading to new project deployment that really moves the needle and decarbonizes the electric system.

So that's why we really zeroed in on project finance, in particular, debt financing because we want investments through Climatize to lead to the construction of new renewable energy projects and really move the needle when it comes to systematic decarbonization. When you're investing in projects through Climatize, you can actually see the solar project that you're investing in.

We want that high degree of transparency and line of sight to the impact that you're having because frankly, there's just been too much greenwashing. We risk that the public pulls back from actually investing in climate action because they are worried that their money is not actually going to the things that they were told.

I think the similar pushback has happened in carbon credits. It's a meaningful mechanism and it can drive a lot of capital to the industry, but you have the spectrum of quality and permanence that has not quite been solved. I don't think there's enough oversight in that industry yet for people to really have full faith in investing in it.

We've seen a number of PR articles come out about the opaqueness of that industry. So given those headwinds that ESG and carbon credits are facing, we wanted to come out with a new financial product that is highly transparent and highly impactful.

Molly Wood:
Right. The idea being that it is trackable. There are metrics you can measure those metrics in kilowatts megawatts.

Talk to me about the number of projects that are available in that kind of spectrum, that sort of sub-$5 million spectrum, and what types of, for people who just have no idea, what types of projects we're talking about, give us some examples. Community solar, is it, you know, like what are we looking at here?

Will Wiseman:
Yeah, so you hit the nail on the head. In particular, we're really looking at community solar. It's a really exciting space because it often does have that really local impact. From there, it's a very rapidly growing industry. Pulling siding N Rails, and National Renewable Energy Labs data, they have community solar growing at 111% compound annual growth between 2008 and 2020. The depart.

Molly Wood:
Is my fault, but let's define what community solar means.

Will Wiseman:
Sure. So community solar is kind of a new sub-sector of solar. The real innovation here is that previously if you had a solar project, you would have one power purchase agreement, where oftentimes it was a large offtaker, a meta.

A Google, an alphabet that bought all of that power, or if it was really small, it was the residential, it was the actual homeowner. There's been challenges in the commercial industrial space, the kind of mid-market space where you know that you don't have the building owner and the tenant necessarily seeing the benefits. With Community Solar, the real innovation here is that you can have fractional off take.

Of the power from that asset. And so now instead of having one big business or the utility buying all of the power from that project, you can have four small businesses and a hundred families all pulling from the same asset and you have billing reconciliation so that they are essentially getting virtual credits to their.

To their bills. Why this is really innovative is because this disproportionately benefits low to middle income families who oftentimes they don't own their roof, and in that case, then they can't put residential solar on their roof. Or if they don't have the cash to be able to afford that residential system, then they were blocked.

They were prohibited from entering and benefiting from not only the energy savings, but the climate impact of solar. With community solar, any family, if you're in a state that has the supporting legislation, you can subscribe to a community solar project and see generally 10 to 15% savings on your bill immediately.

These are this kind of distribution grid-level, smaller scale projects generally in the range of about a hundred kilowatts up to maybe two and a half megawatts. They are sighted closer to towns, sometimes co-located. Some of the projects that we've looked at are on a Shakespeare theater or on a synagogue, on a Boys and Girls Club.

Because those projects are not only in the community, but then also have that nice underlying network, which can help raise capital. That's where we've seen this nice intersection of being able to bring our product in and enable the community to actually invest in their own renewable energy projects.

Molly Wood:
All right, time for a quick break. When we come back, the nuts and bolts, and the surprising regulatory difficulty of building a solution like this.

[ad break]

Molly Wood:
And we're back with Will Wiseman of Climatize, who is about to tell me that this is not investment advice. But here are the many hurdles a company like this has to go through so that investors can make a return on these types of investments instead of it just being a crowdfunding type thing.

Molly Wood:
Right. Let's go back to the investment mechanism then. How do people access it? And then what do the returns look like?

Will Wiseman:
Yeah, definitely. So getting a little wonky here, we had to go through the full FINRA, the financial industry regulatory authority, vetting process. We were approved for membership in FINRA, and then Climatize registered with the SEC. What happens is that a project developer comes to

Molly Wood:
Back up even a little bit more. Why did you have to do that?

Will Wiseman:
Yeah. So we had to go through the full regulatory approval process when handling anybody's money and potentially offering a return on investment. Really, actually Climatize's role is the issuance and creation of securities, and that's the nuance there is that we are actually creating these.

Financial securities that can then be publicly traded among people, and those securities are registered with the SEC. That is part of our innovation as well, is that if you were to fund a solar project previously, oftentimes it would be in a single credit agreement with a single lender. Now what we've done is say, okay, if you're taking out a million dollars, if you're issuing a million dollars of debt, those could be in.

$5 increments and have fractional debt and fractional lending so that the project developer can come and say, okay, I want to issue a million dollars of debt and retail investors can then come and purchase that through our crowdfunding portal under the FINRA regulation, it's called a funding portal.

With that, we can facilitate investments from anything from mom and pop, my grandma, all the way through an institutional investor. That's part of our vision to be able to democratize access to this asset class and enable everyday people to come and participate in these deals that were previously behind closed doors and only really accessible to the wealthy.

Molly Wood:
Let's break this down even more. So when you decide to list a project, you vet the project,

Will Wiseman:
Mm-hmm.

Molly Wood:
Where it's gonna be, you create a, what we would call it as a special purpose vehicle, right? That's how we would think of, like if we were listing a startup, for example, if I were listing a startup to be invested in be a syndicate, a group of investors who wanted to be part of that investment, we would create a contract, a special purpose vehicle. Is it similar to that? Then people can just buy chunks of that vehicle?

Will Wiseman:
Mm-hmm. Yeah, so the project is held in a project company, and that project company is the one that is issuing the debt. Now, the actual legal structure is called a crowdfunding vehicle. We file what's called a Form C with the SEC, and that essentially creates the crowdfunding vehicle. That is then what ultimately facilitates the issuance of the securities.

Molly Wood:
Got it. Then people go on the app or website, or is it primarily app?

Will Wiseman:
Currently fully on the app, so if you go to the website, it'll send you to the app.

Molly Wood:
Amazing. It's investing for the kids.

Will Wiseman:
Yes, exactly. We want to be accessible to everybody. We realize more and more often people are spending more and more time on their phones and your phone is omnipresent. We want that as we go and engage these community buildings.

For example, one project that we've looked at, and I'll just use this as an example, a synagogue, for example, if we're gonna do a solar project on the roof of a synagogue, wouldn't it be great if they're able to speak to the following, and in that moment they all get together and help put capital together to help decarbonize their temple.

That is something that's only accessible through your phone. I don't think everybody is bringing their laptop to say prayers.

Molly Wood:
So then, and this is where we should again, sort of make this more explicit, not a donation.

Will Wiseman:
No.

Molly Wood:
An investment, so people are investing, and then what kind of return can they expect from that investment?

Will Wiseman:
Mm-hmm. Yeah, so with this, you're actually buying what's called a promissory note. On the promissory note, there is a set interest rate as well as a term. What we've seen is return profiles of anywhere from about 7% up to 9%. Currently, there are projects with about 8%. You can see actually competitive return profiles to public equities.

With this, it is a real-world cash flow generating asset, and it's just a fundamentally different exposure to markets than, say, public equities.

Molly Wood:
What is the timeframe you can expect to see those returns?

Will Wiseman:
Yeah. Some of them that we've seen, they're generally structured quarterly repayments, and with that, maybe a five-year term.

It really depends on the specific project. I have to caveat, I encourage everybody to do their own homework and their own due diligence. This is not investing advice. Each promissory note is structured differently. From that, you gotta look at do the terms in the return profile match your risk appetite and your ability to look at potentially illiquid assets.

From there, if you think, hey, this is attractive to me and this fits my portfolio construction thesis, then I think that this can be a really interesting addition to people's portfolios.

Molly Wood:
What is the risk? It is certainly my understanding that the world of solar development can be painful, and sometimes projects don't get built or they don't get approved, or they get stuck in interconnection queues. What should people know about project finance as a category and building these types of projects before they invest?

Will Wiseman:
Yeah, so one of the things, because I've been in this solar industry for long enough to be aware of many of those risks as well, we have been aiming for projects that are past mechanical completion, past their commercial operation date, and are either immediately within sight of being energized or already generating revenue.

That way you are not taking on as much of the construction delay risk, not taking on the interconnection delay risk. Those are earlier in the project lifecycle than we are offering on our platform currently. Because we really want to help protect everyday people, project finance is a nuanced asset class and we don't expect everybody to come in fully fluent in solar.

Because of that, we want to try and keep these securities as user-friendly as possible. That's why I say at least you know, a project on the platform, now you can actually see a flyover of the project. With that, it's already done. It's already on the roof, so you're not really taking on that kind of construction risk there.

With that, that project specifically is just waiting to be energized. From there, we're able to look at a power production profile, run our own studies using some of the solar development tools to get a scope of what we think are the projected cash flows on this and can it actually sustain the debt that the project developers are looking to take on. 

If so, then we would let them issue the project to the platform. We are not just open gate. Anyone can come and post on the platform. We have very stringent criteria that we run through when vetting all of these projects to make sure that we believe that it is up to snuff.

So there's nothing that we would believe is fraudulent and meets our criteria.

Molly Wood:
This might be kind of a dumb question, but if they're kind of past the point of construction, what do they need the additional capital for?

Will Wiseman:
Yeah. This is part of the innovation here. Like I was mentioning, those project developers were in that start-stop cycle of putting in a million dollars to a project and then having to wait till maybe year seven until they actually got the revenue from the project to essentially repay and then be able to go and develop a second project.

Now what we're saying is, hey, if you are at this point where you're in a line of sight or the project is already generating revenues, you can borrow against those cash flows and now have liquid cash on hand to go develop a new project. Instead of having to wait till year seven, you can potentially borrow against your project in year zero and now go develop another project.

That allows the turnover of that capital much more quickly so that those project developers aren't just waiting on their portfolio to generate enough revenue to go build a new project. Rather, you can borrow against the actual asset value of your portfolio.

Molly Wood:
But you're actually invested in the synagogue project. You, the investor, are seeing returns from the existing synagogue project and providing the upfront capital for the next one.

Will Wiseman:
Exactly. Yes. So you have a senior creditor position, for example, on that synagogue project. You are actually invested in that project specifically. Now, the use of funds is in part for the operation of that project, but also in part for the development of new projects.

Molly Wood:
How much of these small projects do you imagine will be part of the mix going forward? Because it seems like these are, I mean, interconnection aside, which I guess we should talk about, it seems like these are pretty easy wins in terms of expanding the overall pool of renewable electrons here.

Will Wiseman:
Yeah. It's a really promising new sector, and the Department of Energy has signaled that they want to see 700% growth in community solar by 2025. They're trying to have 5 million homes powered by clean energy through community solar. Lofty goals there, but they have begun creating coalitions of stakeholders to create scalable and replicable financing processes for these assets.

To your point, we need to move way faster than we are now. With community solar in particular, because there is the potential to co-locate them on buildings and not needing to have them so far away from demand centers, you have fewer transmission congestion issues that are really prominent in particular with utility-scale solar.

Some of the barriers for sure. Only 22 states currently have the supporting legislation for community solar. Even California, the largest solar market, doesn't necessarily have the underlying legislation to enable that. So the CPUC, the California Public Utility Commission, is currently rewriting those laws and we expect to have guidance on that in the first half of 2024.

There's a lot riding on that body getting it right. Opening those doors in different jurisdictions, opening those doors at different state levels is gonna be really important for the expansion of community solar. However, the opportunity is really promising because the actual supply, the generation, is much more geographically located next to the demand. 

You have not only technical benefits from that kind of grid congestion level, but also lower losses in the distribution across the lines. If the project is closer to where it's being used, then broadly the system benefits.

Molly Wood:
To be an investor on the platform, you said as little as $5. I feel like this is a thing we should clarify. You do not have to be an accredited investor. You can be a normal human who wants your money to go in this direction.

Will Wiseman:
Yes, exactly. As little as $5. We want this to be accessible to everybody and anybody. So if you are a parent who is worried about your children's future, if you are a community leader that wants to see more clean energy in your neighborhood, if you're a climate activist and you want to bring more firepower to your movement, that is how we see ourselves plugging into many different communities and being accessible to everybody.

Molly Wood:
How do you get paid as a company?

Will Wiseman:
We take 5% of the funds raised and a 0.5% issuance servicing fee over the lifetime of the issuance of that note. Those are charged to the project developers, so that goes into the soft costs of their project. While you as the investor, if you put in a thousand dollars, you're earning on a hundred percent of your thousand dollars.

There are no fees to the investors. It's part of the ethos of the company. We want this to be the people's network for climate action.

Molly Wood:
This is where we should say you just got over this regulatory hump. You are sort of launching into the world now, right? I mean, Climatize has existed and people could go there, but ta-da, you're here.

Will Wiseman:
Yes. So the first project that we launched raised over a hundred thousand dollars in one week. It was really great to see the public uptake of the product and that real immediate love for what we're going for.

Before that, we had to do donations because of the regulatory license. We were working through that process for over a year. During that period, we were kind of treading water, figuring out how do we continue to build and validate. The very first experiment was trying to crowdfund $2,500 for my 25th birthday to help build a small solar and water desalination unit in Kenya.

We did it. We raised $2,720, and that was the spit and duct tape version of the product. From there, the co-founder of GoFundMe, Andy Ball, learned about our project and he cut the first catalytic seed check into the company and helped us get on our feet. From there, we were then able to build the beta product and we were able to start taking in donations to help support grid alternatives, as well as a community-based organization in Hollister, California.

Through that, we were able to help support 12 solar projects for low and very low-income families there. Donations were a tough space to be in, especially at this point in the economic cycle. We saw that people didn't have a lot of cash to give away. 

I think the immediate response of shipping investments and being able to potentially offer a return on investment and the rapid uptake of that new financial product, I mean, a hundred thousand dollars in a week just showed that when it's an investment, you broadly expand the number of people who could consider this, and that's really what we were going for.

Molly Wood:
Amazing. Where can people find Climatize?

Will Wiseman:
Climatize is currently available in the iOS app store. If you have an iPhone, you can download it there. We're working on the Android one. I'm sorry. We've heard all the feedback, but it's coming soon, I promise. Yes, go to the app store, check out Climatize, or you can also find us on www.climatize.earth.

From there, there's a link to download the app and we would love if everybody gave it a try. We're really looking for feedback and just love the public response that we've heard thus far.

Molly Wood:
Congratulations, Will. This is super exciting, good work, overcoming the hurdles, and I can't wait for everybody to hop on.

Will Wiseman:
Thank you very much, Molly. It's been a pleasure to be here. I appreciate the opportunity.

And that's it for this week's episode of Everybody in the Pool. Remember, this is not investment advice. 

But if you're interested in learning more about how you can get involved in climate action and maybe even make a return on your investment, check out Climatize.

As always, if you have an unexpected climate solution or an idea for a new job, or if you’d like to sponsor Everybody in the Pool, you know, whatever you want to talk about, email me at IN@everybodyinthepool.com. For a deeper dive and the occasional rant about the New York Times climate coverage, sign up for my newsletter at mollywood.co.

See you next time.