In this episode, I will be speaking with Craig O’ Connor, the founder of the Renewable Energy Business Development Program at the U.S. Export-Import Bank that, since 2008, has generated over $2 billion in financing for renewable energy projects. We dive into the stories behind Exim’s involvement in financing some of India’s earliest solar projects and also discuss key financing terms that Exim Bank looks for when financing these projects. Hope you enjoy!
00:06 Karan Takhar:
Hello everyone, this is Karan Takhar, and welcome to the Zenergy podcast. Over the past decade, India has done an impressive job of integrating renewable energy into its energy mix. For this Fulbright Podcast series, I sought to investigate the enabling factors and potential of India's global leadership in renewable energy with a focus on solar. This Fulbright series is broken down into Four Seasons. In this season, through conversations with leaders who have been instrumental in developing the Indian renewable energy sector, we will highlight how India has managed to integrate 35 gigawatts of solar in just a span of 10 years. We will also explore what these leaders believed the key challenges to be as this sector further develops.
In this episode, I will be speaking with Craig O'Connor, the founder of the Renewable Energy Business Development Program at the US Export-Import Bank, that since 2008 has generated over $2 billion in financing for renewable energy projects. We dive into the stories behind EXIM's involvement in financing some of India's earliest solar projects and also discuss key financing terms that EXIM bank looks for when financing these projects. I hope you enjoy it. Thank you, Mr. O'Connor, for participating in this interview, I really appreciate you taking the time, and it would be really great if you could just talk a little bit about the extent of your involvement in the energy sector today and how you initially got involved in this space, you provide a little bit of background.
02:10 Craig O'Connor:
Sure, my pleasure, and thank you for the opportunity to speak with you today. EXIM bank, as you might know, was established in 1934 by Franklin Roosevelt during the New Deal to provide financing that didn't otherwise exist or didn't otherwise exist on commercially viable terms, and you can imagine the challenges that global markets faced in during the Great Depression in the 1930s. So here EXIM bank is 87 years later, still providing financing largely in emerging markets where financial markets aren't yet developed or aren't yet developed to the extent that commercially viable financing is available and so EXIM bank has a congressional charter, so every five to seven years at charters renewed and our focus on renewable energy really, begins formally with the 1992 Charter, in which there was a language that directed EXIM BANK to increase its support for environmentally beneficial exports, including renewable energy, also named an Officer of the bank to advise the board on strategies to grow the bank's portfolio, and on a personal level, I started at the bank in January of 1993 is a loan officer covering the Middle East and North Africa. After one of the board cases, I was encouraged to apply for the newly created position of environmental liaison officer, and so I applied, and this was late 1994 and really began in earnest in early 1995, world a strategic plan for the bank about how it could increase its support for environmentally beneficial exports and of course including renewable energy.
03:53 Craig O'Connor:
So I've served as the bank renewable energy officers, since that period among other duties as assigned you to know, one of the one of the advantages of a smaller agency is you get to we had a lot of different hats, so, so right now I'm wearing a loan officer hat, but I'm also again probably the chief person engage with the business development degree that grows their bank's portfolio, So EXIM bank, before that EXIM bank had been involved in energy, for years, for example, we find out some of the first independent power projects in many countries around the world, this country shifted from government ownership and operation of power projects, electricity projects to more allowing the private sector to come in and build on and operate, maybe transfer, maybe never transfer electricity generation plants, and so it was kind of this change in philosophy's of governments to say, well look, if we get the electrons, does it matter if the government owns it or if a private sector company use it.
04:52 Craig O'Connor:
And maybe it's better if it's the latter because then the government can preserve its scarce resources to invest in healthcare or other things that can't easily be done by the private sector, so it was that it was kind of that change in philosophy, but also the emergence of in the case of renewables, renewable technology, but just to go back to my original point, so EXIM bank had financed the Itaipu dam in Brazil in around 1980, we had financed Utah, uh hydroelectric project in Argentina and today I think that still provides 25% of Argentina's power, so EXIM bank has long been involved in first of its kind energy projects. In more recent times, what we saw, particularly since probably the mid-2000s, was the emergence of solar and wind, and before that, I had mentioned EXIM bank had long been supporting hydro. In the early 1990s, we supported a number of geothermal power projects in the Philippines and other countries as well, but really what we think about now, with respect to the growth of solar wind, it really began in earnest probably around 2006 when the technology improved to number 1, but also you had demand-pull policies put in place by the European Union, they had feed-in tariffs.
06:21 Craig O'Connor:
You know, if you build a solar project or one project and you connect to the grid, we promise to pay you to know, I think it was up to affect €50 since uh kilowatt at one point that Germany provided that Spain had provided others and so this really this kind of this you know this combination of improvement in the technology and demand-pull policies really helped to expand the growth of solar. So in terms of and then, I'll pause for another one of your questions, but in terms of EXIM bank, you know our current area and where we became involved in India was that you know as part of the bank's effort to grow its financing for renewables, you need to do a couple of different things. I mean first of all, you need to know who in the United States is manufacturing renewable energy technologies whose manufacturing solar panels, manufacturing wind turbines, geothermal power projects, hydro, etc., and so it's a kind of A2 pronged approach; you get to know US exporters you let them know what you have available in terms of financing, but you also to use this phrase again.
07:30 Craig O'Connor:
You also want to create demand pull by going to key international markets, you do some research to figure out where are the leading markets for renewable energy, where EXIM bank can also make a difference, right, So EXIM bank financing may not be needed in Germany or Spain, where they've got, you know, law term viable capital markets, banking markets, but our financing is needed in emerging markets such as Latin America, such as India other markets in Asia and Africa and so you you do that research, you kind of create a If you can imagine this, a Venn diagram and you figure out OK, well who are the leading projects sponsors who are the leading by errors in these emerging markets and if you can alert them to the fact that look EXIM Bank is a U.S. government agency, we probably have the most cost effective source of financing, certainly in U.S. dollars, but also were able to provide loan guarantees and so EXIM bank is part of the OECD Export Credit Agency agreement, not only do we have a focus on growing our portfolio per the directive mandate from Congress, but also within this OECD group were able to offer the maximum allowable repayment terms for renewables, which is now 18 years, right? and so with renewables, essentially you're buying heavily capital intensive, you're buying your fuel up front, if you will and so the longer terms that you can offer at the better rates it translates into a lower cost of electricity and so that that's part of what we did starting in 2008 with India. So maybe I'll just, I'll pause here, and I'm sure you have a few questions.
09:07 Karan Takhar:
Thank you so much for just providing all of that great clarity, and you made my job very easy because you just answered three of my questions in one answer.
09:19 Craig O'Connor:
Well, that's great, you know, we want people to use EXIM, the bank we want to grow our portfolio. I always kind of, you know, kid people when I'm in international markets, and I said, listen, I don't work on commission, maybe, maybe for good or for bad, but I mean, what you see here is an honest broker, you know, EXIM bank financing, we're not telling you who to buy from the United States, but if you find US technology cost competitive and compelling, then this is a type of financing we can offer. So, again 18, year repayment terms, in addition to financing the US-made goods and services, we can also finance local costs up to 30% and possibly move up to 50% of the value of US export contract, so to give you an example, if you've got 100 million in the US exports EXIM bank in finance 85 million dollars, there's an OECD export credit agency group requirement that the buyer makes it 15% cash payment to the supplier so we financed 85% plus we're able to add onto that 85 million, another 30 million in local cost and just to make one point, I mentioned the US made goods and services, it doesn't have to be the US owned so for example, one of our leading wind turbine manufacturers and exporters as Siemens Demeester renewable energy. So, it used to be two firms go, massive Spain and Siemens of Germany took over Gomera, it's a German-held company, but they manufacture wind turbines and Hutchinson, Kansas, and Blades and Fort Maze, Iowa get the towers from a variety of suppliers in the United States, and so we find in Siemens wind turbines obviously, as well As for solar thin-film modules.
10:56 Karan Takhar:
Very interesting, and yet I'm just kind of curious in terms of like how the process works, and it might be a great kind of transition to my next question, which was with specific regards to the Indian market, so I know EXIM bank just threw all my Fulbright research through my conversations with a lot of industry players over there was very involved in helping facilitate the solar sector growth, especially early in the process and I'm just curious, could you like provide the story behind how the first Indian solar project, kind of got introduced to EXIM Bank's portfolio? Like did someone approach EXIM bank and say we would like help with financing or?
11:45 Craig O'Connor:
Right. Well, really, this is a great story, and this is probably of all the things that my career I've had a varied and interesting career with EXIM Bank. For sure, probably the thing I'm most proud of is the excellent bank's role of being the first financer international financer to finance a national solar mission project in India, So to go back, the National Solar Mission was announced by the Government of India. I'm on one saying I think was then the Prime Minister and created a target that India wanted to get 100,000 megawatts, 100 gigawatts of solar energy. I mean, it's clear if you visit Rajasthan, visit other areas in India, the solar resources there, as again I mentioned earlier, the solar efficiencies started to improve, the costs of solar modules started to decline, and all of a sudden you're getting very cost-effective energy, indigenous energy, the energy that doesn't require major infrastructure investments, that can deliver power to Indian people, and it's they've clearly, you know, achieved quite a bit, and it's, it's impressive what they've done
12:46 Craig O'Connor
So our, our involvement really starts In 2008, so in 2008 EXIM Bank created its office of Renewable Energy, we created our renewable Energy exports initiative, and so I started that up, and part of you know earlier the strategic plan and how do you grow this business? Well, you know EXIM bank is only relevant if U.S. companies win the order, right? And so that could either be US companies introducing their customers, decks and bank and EXIM bank introducing the customer's tax and bank financing and the customer saying, hey, well this is great financing. Let me look at the US and see if I can buy US-made goods and services to take advantage of this long-term cost-effective financing, and so part of what I've tried to do throughout my career, I get myself invited to various conferences to speak because this highlights what EXIM bank can do, again, it grows the awareness, and you know with the growth of awareness can drive the growth and demand and so my earlier a point to you to get to know the US commercial service in India and they're in every major U.S. embassy you can imagine and the foreign service nationals or the citizens of the country that work for the US government to try to find projects export sales for U.S. companies and some fantastic resource
14:18 Craig O'Connor
And so I was invited to speak at I think it was the first or second renewable Energy India Expo and I gladly accepted and but before I went, I had sent an e-mail to the Commerce Department and State Department folks in India and said look, I'm going to, I'm going to be speaking at this conference but I'd love to meet you know, potential project developers that may be interested in next and bank financing for financing solar projects and financing other projects and so I admit a number of people the conference, but I was also set up with a number of meetings and if you've been to India, so you know how the traffic is and luckily I Held my meetings mostly in the Maurya Sheraton so people would come to me and I could I could do 6789 meetings a day instead of the two or three that you could do if you were out on the road yourself doing it So I was introduced to folks like Inderpreet Wadhwa who started Azure Power and I was introduced to folks like artist you're a contractor who started Karen Energy in a joint venture with him, the Hendra's and the folks from Reliance Energy. So Uhm, Azure Power was was just beginning they were very interested in the financing, and Azure power, I think, actually was the entity that came to us and said, look, we're interested in buying from first Solar we're pursuing a national solar mission project, this is something you can do.
15:48 Craig O'Connor
And so we looked at it and it, you know, there's there's a little sausage making in this, right? and so, you know, there's a power purchase agreement that the Indian government had put out you know, there were some terms that we need clarification on anyway, I work very closely with our project finance group actually nowadays I'm house within the project finance group those days we had kind of a standalone office and so the folks within the project finance group very proactive and that our folks in EXIM bank legal area. They sent a team because the thing was, I said look, it's not just a one-off, it's not just Azure power, there's a lot of companies that are going to be coming into us with applications, and we need to determine our approach and so to the credit, there's a team that went to, went to India, interviewed the government the project sponsors, and just to step back for a second, the power purchase agreement was with involvement, which was a trading arm of the National Thermal Power Company, a government-owned enterprise, very creditworthy on their own and so we wanted to see ask certain questions about the power purchase agreement and basically with project finance and not recourse project finance.
17:03 Craig O'Connor
You'll end to the project, and it's the cash flows from the project that repays your loan, and so in this case, it was the cash flows generated by the sale of electricity to MVM that would pay back EXIM makes loans, so in that instance, you're looking at the technology to make sure it's proven and reliable you want to make sure that the project doesn't have too much debt that and so there's, you know, the debt service coverage ratio isn't too, isn't too thin and so, in other words, the project will have enough revenue to pay back its borrowings and so in that case we found that to be viable and so we're able to finance the first project with Azure Power and then a series of projects and actually, not only did we finance the first one, we finance the first nine and you know ended up with a portfolio of about $350 million. It supported close to 300 megawatts. So quite proud of how we did that. It wasn't just a national solar mission.
18:03 Craig O'Connor
So we're actually, I think we were the second one to finance the state of Gujarat solar project, so our sister agency OPEC, then, now DFC, beat us at that one, but I was determined not to let them beat us for the national Solar Mission so that that's the back story, right. And so, yeah and here's the thing too, it's some, so our loan was in, in U.S. dollars the revenues were in Indian rupee so we, you know, we had some currency mismatch the project sponsors were able to hedge that, but then the fundamental question was why was EXIM bank needed at the time? Well, the Indian banks really weren't lending for solar, now many banks were lending for solar, you know, in fairness, but also the terms were pretty short, right so maybe the terms were five-year terms or maybe eight-year terms was the maximum terms in order to when a project through the bid that the government had offered, you needed to have low-cost solar power, and the fact that you had low-cost financing helped to create a, you know, low-cost bid for that power.
19:09 Craig O'Connor
And let me also step back and explain the Indian government process; so I thought the way the Indian government did this was really good. So, they would have a yearly or every two years they would have an auction, and then they would buy OK this, this time, this auction, we're going to buy 500 megawatts of power, next time we're going to buy, you know, 2000 megawatts of power. So they were essentially riding down the cost curve of solar, right, of solar modules, and so the way that they would conduct these bids is, you know, made the lowest price win. In other words, the company that will sell US power at the lowest cost we'll win the project, and again, thanks to us working with the Indian Project developers and answering all their questions, I had a lot of crazy late-night calls, early morning calls, weekend calls to explain to them EXIM bank process How it worked? Is it basically how we're able to do this, and we had developed really in understanding again, as I've mentioned, of the power purchase agreement and how the project should look like?
20:08 Craig O'Connor
So, we actually, and I can send this to you at some point if you're interested, we actually developed a sample term sheet for different institutions because I was getting, you can imagine, once we did a press release and highlighted our financing of these projects, we were inundated with requests and so worked with our project finance folks and developed a term sheet. So, this is a sample term sheet of what EXIM bank financing might look like, these are the types this is a type of information we're going to need in order to move forward with your application, and that was worth its weight in gold and actually enabled us to what I would kind of described as building a franchise to do not, not one-off, not the first one, but the first nine and then positioned ourselves to do even more projects later.
20:58 Karan Takhar
Super interesting, yeah, I actually interviewed their priest blah blah, and his story in itself is also fascinating launching Azure and like creating the First Utility-scale solar project in India and incredible to see that EXIM Bank was also like a part of enabling that process that companies done really well and you know my imagine without EXIM support who knows whether it would have taken off like how it has but well, yeah. Thank you for providing all of that story.
21:36 Craig O'Connor
Of course you know and it interprets an interesting, interesting guy of course he had as you probably know from interviewing him, he'd gotten his MBA from the Haas Business School at Berkeley, I worked for Oracle for seven years and then notice all the solar projects in California and said, hey, we got even better resources in India and there's a real need for power and electricity in India and so is, you know from his, you know, your talks with him started his business, but you know his first thought was to to buy US made goods and services, when he when he started his his company now the same thing your contractor not only if you've not interviewed artistry, you definitely should, he's now he sold his company he's now an entrepreneur and kind of professor leading the innovation Department at the Ohio State University, where he got his electrical engineering degree as an undergrad and also his MBA so artist years back at Ohio State but you know, here again these are folks that folks had studied in the United States, got familiar with working with with Americans, got familiar with working with US technologies, went and started businesses in their home country, that what generated US exports and supported U.S. jobs. So there's a, you can see there's a larger story here, right? And kind of outside our bailiwick, but important agreed.
22:48 Karan Takhar
Yeah, that's uh, and there's the US, it's headquartered in Delaware and like listed on the American Stock Exchange. So again, but yeah, small world and I would love to one get the term sheet that would be really interesting to look into. Are you guys still using that same term sheet, or has it evolved significantly?
23:39 Craig O'Connor
You know, I would say, you know, project finance, the fundamentals are still pretty much the same, so depending on what the new kind of offering from India looks like we might we, we could certainly alter it, amend it, tailor it to the current situation.
23:44 Karan Takhar
What are some of the the core aspects that you try and protect against? Like I guess another way to frame this is maybe like how have the risks involved from your perspective, like from those early projects that may be the later ones that you find in?
00:24:01 Craig O'Connor
Yeah, EXIM being one of the constants and I don't think I'd mentioned this to you know overtly, but in addition to financing the export US made goods and services or other pillars that we look for a reasonable assurance of repayment and that can take the form of, you know, lending to accompany lending to a special purpose project like in project finance, lending to a government, which we don't you know, we don't live that much to governments these days and so we do a due diligence and so I mean really we're going to look at, you know, what's the price of power that they're selling looking at the experience of the project sponsors, can they successfully execute the project looking at the technology, I mean the technology is kind of already proven and reliable, so we continue to evolve I mean one, one kind of obvious challenges that you're if you're earning revenues in the local currency rupees Or Brazilian reals, or other currencies ideally you could borrow in the same currency so you don't have the foreign exchange risk, because the challenge is if you've got to pay back alone in dollars and the local currency drops in value against the dollar, then your debt burden is increased significantly.
25:15 Craig O'Connor
And so we also are able to provide loan guarantees clearly in U.S. dollars, but also in currencies such as rupees and Brazilian reals and other currencies and so that's something that I think we'll try to explore and hopefully create greater utilization for in the future because it does, it does provide a natural hedge if you're able to achieve that, able to match the revenues and expenses
25:45 Karan Takhar
Who exactly can qualify for an EXIM loan? You need to use all American-made products that you're building a solar project. Could you provide a little more clarity around who qualifies for EXIM?
26:01 Craig O'Connor
Well, again, it would be the qualifier would be the borrower, and the borrower, in order to qualify, would need to be creditworthy, or the project would need to be creditworthy, but I think you raise a good point because EXIM bank we finance the export of US-made goods and services, so there may be Uh, from other parts of the project that maybe, maybe we're not able to finance and so in our last charter from Congress in December of 2019, we were given special language authority to help U.S. companies compete with China. As you know from your research, China probably has, what, 87% of the world market for solar modules, right and the difference is they make the Poly silicon, the crystal silicon modules whereas first Solar has cadmium Telluride It's a deposition thin-film module, so it's a different technology, I mean, clearly, you know, China has been found guilty of predatory practices dumping support from both their central government and state government to their manufacturers.
27:00 Craig O'Connor
Recently a really horrible story came out about slave labor and Shin Jang when the Uighurs were in the production of Poly silicons. So, it's an issue now, Uhm, so with that China competition in mind? EXIM bank is now able to support greater inclusion of what we call eligible foreign content. So, in other words, imagine a company like the next tracker, you know, they're making tracking equipment to help increase the productivity of the electrons produced by the solar panels, and maybe they have, you know, maybe they have 70% US content, so their trackers and I'm just using an example, so I don't know what exactly what it is, but we'll just say 70%, and so if they have 70% US content and they're US export contracts as long as it's 51% or above the EXIM Bank and finance the 85% of the exports coming from the United States and so that gives us more financing a building for the exports, but it also serves to increase the amount of local costs that we can support. So remember the local cost is 30% of the value of the US export contract, right? And so if we're able to grow the US export contract, then we're able to grow the local costs. And so now what we're seeing is combined with the equity investment that uh project sponsor might make and that that typically ranges around 25%, maybe 25 to 30% EXIM bank can usually be the sole source of debt to a project which project sponsors tend to like because they're dealing with one bank, one set of legal documents, etc.
29:07 Karan Takhar
29:08 Craig O'Connor
You know, the more you know, the more that we could build back better, you know, to steal the present bidens phrase, you know, the more that we could build back better in the United States and export our technologies to the world to help the climate situation it's a win win for everybody and also as you know, solar is the most, it's probably the lowest cost energy nowadays closely followed by a win and so, you know, if we're able to push that cost even lower then you, you can see the ramp up, right and we haven't even, I haven't even talked about storage here today, but that's you know that's coming along very rapidly I mean, obviously we have, you know, Tesla making the Powerwall and Power Pack and but there are other companies, energy Storage Systems Inc. makes an iron flow battery, uh, you know, a 10-year warranty from Munich reinsurance they've got a number of orders under their belt there's another company EOS, that's energy, they're out of Pittsburgh. Maybe you've heard of him. That's a really interesting story. In fact, maybe for one of your interviews, you might interview some people there, and I can give you some contacts, but they perfected the chemistry of their sync flow battery, and they were having some problems when they were manufacturing it.
30:21 Craig O'Connor
Well, where were they manufacturing it in China? So what they decided is, you know, we just can't get the quality that we need, and so they brought back their whole supply chain from China to the United States. So this is, yeah, this is a great story it did those guys are really starting to ramp up, so there's, you know, there's room for all types of technologies. The demands are huge when you think about, you know, the transition to, you know, clean energy, the resiliency that's needed, not just in emerging markets for the United States, you need backup power. I was at a microgrid conference mini-grid conference just before COVID, and unbeknownst to me, most major cities have an energy manager, right? So the city of Washington DC, as an energy manager and then there's a panel of three of them that person was one, I think there was one from Princeton, NJ. There's one from Bridgeport, CT. Anyway, they were talking about islanding, and Islanding was the term of well, look if the grid goes down, we want to make sure the hospital still has power, and we want to make sure the water treatment plant still has power, and we want to make sure other critical infrastructure still has power.
31:35 Craig O'Connor
And so when you can put up, you know, solar and storage mini-grid, right? Not only are you, you know, reducing your cost from the grid itself, but you're also giving yourself a resiliency and standby power, and so that's obviously important for the United States, but think about unelectrified communities in India and Africa, right? It doesn't make sense to run power lines down highways as we did, but you can do this with distributed energy. The other thing I wanted to mention before we close out here is a corporation get this too, Uh, corporations are buying renewable, they're buying storage in order to reduce their costs, but also for resiliency. There's something called the RE 100, and so there are the group of global companies, mostly large companies, that have committed to getting 100% of their energy from renewable sources, and that number just continues to grow, and so you can, you can imagine the, you know, the amazons of the world and the Googles of the world, I think Google today is maybe the largest buyer of renewables in the United States, but maybe, maybe Amazon just eclipse them, and they keep, they keep going back and forth, but that's also a big driver and so, you know, I hate to use this plan, but I'm going to do it anyway the future is bright for solar.
32:59 Karan Takhar
I hope you enjoyed that episode, and do check out the show notes for more information on my guest. See you next time.
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