The Grid Mod Pod | Episode 2: Overcoming Obstacles to Solar Energy Projects with Matt Hankey

Thanks for having me on. Excited to talk today and spend a little bit of time together. As you said, my name is Matt Henke, I'm the CEO of New Energy Equity. We are a distributed generation and community solar developer based in Annapolis, Maryland. We have about 100 employees across the country based in four different offices: Annapolis, Maryland; upstate New York; Minneapolis, Minnesota; and Boulder, Colorado. Recently, as of April of last year, we had some very exciting news that we joined ALLETE, the publicly traded company out of Duluth, Minnesota, acquired our company in April of last year. We couldn't be more thrilled about the acquisition and the transition associated with it. It's been a great process for us and great for the future of the company. So I'm excited to be here today, excited to talk to you, and hopefully shed a little bit of light on the mystery that is distributed generation and community solar.

Sure, absolutely. So by way of background, I joined the solar industry about 15 years ago. Prior to that I was a finance nerd who wanted to make a difference in my life, so I started a renewable energy company not dreaming that we would find the success that we found. The industry has grown massively and run through a number of challenges since I've been in the industry. Every year you kind of look back on what has happened the previous year and you say to yourself, how are we going to grow by that much? Sometimes 20, 50, 60, 100 percent. And with that growth comes a number of challenges that have impacted projects along the way. To give you context, when I started in the industry, if we were talking about potentially developing a project today, we could potentially look at having the project done by the end of the year. Interconnection studies were anywhere between 30 and 60 days, the grid was not near as full in terms of capacity and applications that were going into the interconnection queue, permitting was a bit faster, materials were readily available. Now, the projects that we're developing, we're talking about currently installing in late 2025. That's a pretty big range. Back when I started, it was going to be a challenge to get the project in in five to six months but it was certainly potentially possible. Now we're looking at 18 to 24 month timelines to get projects from start to completion. So there's a number of challenges. Interconnection is by far the biggest issue for our industry right now. It's being talked about by a number of agencies, industry groups. FERC has taken up the policy, the DOE has issued statements and white papers on interconnection, and then you have a number of trade groups both on the developer side, which is the side that we're on, as well as the utility side who are trying to find the best way to make these things happen. It's not easy. I looked up a few numbers before the podcast. In 2010, the interconnection queue was 50 percent of the installed capacity throughout the United States. Right now it is over 50 percent of the installed capacity. It's grown tremendously, almost by three times. Solar applications were 80 percent of the applications over the last year for interconnection capacity in the United States. So it's a huge issue, and there's a number of utilities and trade groups who are trying to take a proactive approach. We at New Energy Equity firmly believe that to the extent that utilities and developers are on different sides of the playing field and not working together, it's going to be a challenge for both. So we do try and take a proactive approach that is collaborative with the utilities in each market to see what we can do, because ultimately, whether it be following the federal policy and federal goals of clean energy targets by a certain time or the utilities' self-stated goals of renewable targets by a certain time, we all need to work together in order to find a solution to this big issue. Without that collaboration, it's going to be a huge challenge.

Yeah, so the majority of what we do is community solar. It's probably 90 percent of our business right now, and our average system size is creeping up much closer to five megawatts AC. That's typically where we are. The facts that I cited were based on larger transmission interconnection, but I also think it's reflective of the growth in the distribution sector as well. When it comes down to it, you have a bunch of solar that's trying to be interconnected, and then you have some conflicts along the way. Utilities want to protect infrastructure and their systems, states want to push towards their clean renewable energy goals. There are conflicts where utilities by design have to move a little bit slower because they need approvals; they need to work within the state and within the constructs. And you have developers who are notorious for being able to move very quickly. So there's a lot of conflicts in that process. I agree with you that working collaboratively is absolutely necessary, and I think it shows itself on both sides. The utilities need to do that, the developers also need to do that, and that's something that we've tried to do as an organization in each state market that we go into. We are seeing that be successful in our size projects in certain cases. You have states like Minnesota and New York where they are starting to study projects in groups where they can share interconnection upgrades across those projects versus one project bearing the burden of all of the interconnection cost upgrades to get to a certain system size, and then the projects behind them have a much lower interconnection cost. Hopefully developers and utilities can take a long-term view of interconnection applications instead of looking at how one project plugs into the grid. I think that's the mindset that we need to shift on both sides: we need to have a longer term view on how this works and how those interconnection costs can be potentially shared across whatever is coming onto the grid in order to hit those goals in the long term.

Yeah, absolutely. About five years ago, I sat down with the management team here at New Energy Equity, and I think we said that by next year energy storage should probably be 20 percent of our business. We're working in distributed generation, community solar, but on some smaller scale, non-utility scale things. That 20 percent has continued to push every single year. I think we've seen a lot of growth. You hear all the headlines about all the energy storage going in, but the majority of that energy storage is going in at utility scale because that utility scale storage is able to take advantage of higher cost electricity with day-ahead markets and things like that within the larger transmission systems. I'm still not seeing that significant growth on the distributed generation side, and I think it's because there's not a ton of incentives able to bridge the benefits that energy storage brings. I agree with you, I think it could be a solvent for a lot of the problems because when you study from an interconnection standpoint, most of the issues are on the outlier scenarios that could be damaging to infrastructure, unsafe conditions, maxed out conditions. Energy storage is a great solution to solve a lot of those, but in order to get energy storage prevalent in distributed generation, it does need to be incentivized. It's not something that a developer like us is going to put on a project if it drags down the return of the project, because ultimately everybody in the food chain needs to make money along the way. I think we're starting to see a little bit of momentum. New York is a good example of providing some level of incentive for distributed generation storage. California in their recent community solar program, which they're rolling out right now, is providing a requirement but also benefit for energy storage to be installed. It's worked financially within the utility scale projects because of the ability to take advantage of very high cost energy periods to shoot the electricity out onto the grid when it's most economical. I do think that we need to look at how we can incent storage at the distributed level because I don't think there's any argument between the utilities and developers that there's a significant financial benefit of doing so, both from an electricity cost standpoint but also from a savings of infrastructure costs in terms of replacements and upgrades. I think that's what needs to happen. I'll update you: storage is not 20 percent of our business. Five years ago we thought it would be. Right now I don't think it will be next year because of some of the reasons I'm outlining. I think we're on our way there, it's just been a little bit slower than I expected. The other thing I'll note is that I do think that utilities and developers, for the benefit of the customer, need to get on the same page as to how that storage will be treated over the long term. One of the things we're concerned about, we take reputation and integrity very seriously, is promising a customer to see some type of savings or an investor to see some type of revenues from storage and then the utility changes their rate structure in order to remove some of those benefits. That's our concern: we don't want to get three, four years down the road, we've installed a ton of storage on behalf of customers, and then the rates change for them, putting them in a different financial position than they expected. I think it would benefit all parties, utilities and developers, to sit down and talk about what that looks like. These are complex discussions that have a lot of inputs and variables on both sides. While we try and get along with the utility side of the business and collaborate, not all developers do, so there is some rub there as well. How do you have that conversation fast enough to take advantage of some of the opportunities that legislation like the IRA has provided for both utilities and developers and customers? How do you have those conversations quickly and collaboratively in order to not miss out on the opportunity? But I think storage is another case where interconnection is bringing a lot of folks together and trying to figure it out in a new way with some old influences instead of using old ways on both sides.

I think where we've been successful in markets from an interconnection standpoint, which does tend to be the biggest challenge, is truly when both sides, developer and utility, come together and collaborate but they're also truthful with what that means to their business. Listen, everybody needs to have a financial return on their investment, both from utility and the developer side. But there's a lot of good with solar installations and storage installations that could benefit the utility, the developer, and ultimately the consumer of electricity. Getting together and having those conversations with decision makers, not having the conversation for the sake of having a conversation, but having the conversation for the sake of finding a solution to the issue on both sides, is where we've seen the most success come. I think that we're at a point now where interconnection has hit a breaking point, both on utility scale and distributed generation. We're not out of the woods yet, but I do think there's a lot of attention being shined on the problem, and with that there's a lot of smart folks on both sides who can find a solution if they come together, are truthful with what it means to each other, and collaborate to find a solution. If we could pull that off, I think two to three years from now we'll be in a much better place from an interconnection standpoint. If I can tell you anything from 15 years in the industry, I will tell you that something else will have popped up at that point which will be the issue, so it's never a dull moment as a developer. But I do think this one is solvable. Coming together and talking about having storage here would be greatly beneficial to the grid, there's a chance to say, 'All right, well let's incentivize that to happen.' Let's put an incentive on that because it is beneficial for both parties for that to happen. Those types of conversations are great ones to have in order to find the solution to what is a really, really big problem that everybody's working hard to try and solve.

Thanks Elizabeth for the opportunity. I enjoyed chatting with you and look forward to talking again soon.