An Interview With Martita Mestey
Understand your money. Investors have varying levels of patience, but none is infinitely patient. When I first started talking with Blackstone Credit about their investment in ClearGen, I took note that these are investors with a limited risk appetite and very little patience to fund losses. We undertook some early acquisitions to cover our costs, stayed lean and were quick to reject opportunities that had risks like selling into the open power market without a contract. The last thing I wanted to do was to undermine their trust by serving up deals that they would never agree to.
As the world grapples with climate change and environmental degradation, the shift towards renewable energy has never been more critical. Innovative companies are at the forefront of this transformation, developing sustainable energy solutions that reduce carbon footprints and promote a greener future. How are these companies driving the renewable energy revolution, and what impact are they making on the environment and the economy? As a part of this series, I had the pleasure of interviewing Rob Howard, the CEO of ClearGen.
ClearGen is led by seasoned industry veterans with extensive experience in the energy sector. Backed through its credit division by a significant long-term capital commitment from Blackstone, one of the world’s foremost investment firms, ClearGen is positioned as a comprehensive one-stop-shop solution for clean energy financing.
The company’s CEO, Rob Howard, brings 20 years of expertise in investing in, financing, and managing energy assets. From 2016 to 2020, Rob served as the Executive Vice President and Chief Operating Officer of Cogentrix Energy, a top power asset management firm. His career also includes key investment underwriting roles with The Carlyle Group and ArcLight Capital Partners. Throughout his career, Rob has overseen over $1 billion in equity investments in power and midstream assets across North America and Europe.
Thank you so much for joining us in this interview series! Before we dig in, our readers would like to get to know you. Can you tell us a bit about how you grew up?
Absolutely. I’m the middle child of three sons born in Florida, and I was the classic middle child as a kid — quiet, avoiding conflict, and too comfortable with the familiar to take risks. We moved to North Carolina when I was 12, and it was the type of sudden impact that I needed, having to learn to take risks, put myself out there, and make friends.
Going way back, many of my family members attended UNC-Chapel Hill, and I grew up an ardent Tar Heel. Nonetheless, my parents pushed me to apply to Duke during my senior year of high school, which I naturally resented. Among my application essays, I noted that my impression of Duke was that it was an anti-intellectual haven for pre-professional rich kids and that they should reject me if there were any truth to that. They took the dare and accepted me, and after a visit that completely changed my opinion, I returned the dare and accepted. I’ve grown up a lot since then, but I’m still very direct and call things like I see them.
I ended up focusing heavily on energy policy and economics in my undergrad. The combination of policy, economics, and industry was particularly interesting, but I still didn’t know what I wanted to do with it. During my senior year, I had three job offers with a little commonality — one in GE power systems, one in energy consulting, and one in Lehman Brothers investment banking. I took the investment banking offer because I thought it would be the most exciting and joined the Lehman Brothers power and utilities group. This was 1999, on the cusp of all the drama of Enron and its ilk, the California energy crisis, and the tremendous growth in independent power. It turned out to be a lot more exciting than I imagined.
Finance is an excellent tool for understanding complex systems. Particularly in energy and power, society’s actions constantly shift investment based on regulation, markets, and private actors, and those investments demonstrate the effectiveness or ineffectiveness of policy. Finance can be far from simple, admittedly, but it’s a great opportunity to start the conversation by distilling objectives and outcomes.
Maybe it’s still the middle child in me: What are we arguing about? What is everyone’s objective? Why are we doing what they are doing? How can I have a positive influence on this?
Can you share the most interesting story that happened to you since you began your career?
The most exciting moment in my career was when I shifted from finance to general management. It was one of those opportunities that you may think you want for your whole career, and when it suddenly emerges, you have to be ready to take it.
After Lehman Brothers, I worked for two private equity firms: ArcLight Capital and The Carlyle Group. In both cases, the deal team remained point on the investments we made through the good and bad. There are people who pride themselves as deal junkies, but for me, the satisfaction came in taking on something complex, learning it, growing with it, getting it to success. Principal investing was hands down better than banking in that regard, but I still hoped to find a way to shift from purely investing into more of a general management role. The opportunity to make that leap can be hard to come by.
While I was at Carlyle, we acquired another operating platform. We saw an opportunity to combine the two into a truly unique platform for private equity investment in the power industry. As we assembled the management team with members from each side of the merger, I suggested to my boss that I join to help the merged company better understand and pursue Carlyle’s objectives. He was appropriately skeptical and pointed out that I hadn’t managed much more than a deal team and the supporting cast of lawyers and consultants.
Still, ultimately, he agreed, and I joined Cogentrix as the Chief Operating Officer. That allowed me to learn and demonstrate my potential in a general management setting. I learned so much from that experience and the other management team members. Previously, I had seen what the portfolio company did through the eyes of the financial sponsor, but now I understand the operating company’s view and the challenges that it faces.
Are you working on any exciting new projects now? How do you think that will help people?
A lot of the most exciting innovations are happening on the regulatory front, believe it or not. We are working with our partners to pursue projects in new states. This is not as simple as you might think. States that pioneer markets are often the most accommodating, and those that follow may modify the terms to reduce the cost, accommodate some legacy stakeholders, or learn from the lessons of the pioneers. As a result, the same equipment installed in one state may have a completely different risk-return profile than in another state. Understanding the regulatory constructs, pricing that risk, and growing the asset base is critical to what we do. But in the end, it demonstrates the depth of this market. Our geographic footprint is still largely within a handful of states, and even in those, the distributed renewable energy market is only touching a fraction of the total addressable market. We are in the early innings here.
Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. What innovative technologies are you implementing to enhance renewable energy production?
ClearGen’s focus is not about rolling out new tech that you’ve never seen before. We are taking technology that previously required energy users who knew how to operate generating equipment and who had a balance sheet to finance it themselves, and now we’re making this accessible to the rest of the market. That’s not to say there is no innovation, but it’s happening in ways that the casual observer may not always appreciate. For example, the uptick in demand for solar modules, inverters, racking, batteries, et cetera, requires considering new suppliers. We vet and approve or reject newcomers with an eye toward the longevity and financeability of the portfolio.
There is a tremendous drive toward finding the new singular technology to solve humankind’s energy consumption. I don’t discourage that because you need passionate and patient minds to continue feeding innovation into the space. But historically, the evolution of the industry has been a cycle of invention, improvement, and displacement. The innovation that occurs along the way is just as important as the whizbang contraption.
How do you balance economic viability with environmental responsibility in your renewable energy projects?
We are primarily investing in distributed energy solutions (both energy generation and energy efficiency) supported by long-term offtake agreements with businesses. These businesses may be invested in real estate, manufacturing, or services, but regardless, their primary objective is not to consume renewable energy; it’s to stay in business. So, in these cases, there is rarely a tension between environmental responsibility and economic viability.
In fact, we generally want to ensure that our customers see tangible financial benefits from our projects because that ensures they will be motivated to uphold the contract in the future. This becomes a credit decision because it protects against the risk that an environmentally altruistic manager is replaced by a financially motivated one. For our customers, I want to make sure that these two managers make the same decision.
What are the biggest challenges your company faces in the renewable energy sector, and how are you addressing them?
ClearGen looks to invest in categories where the broader capital markets have not. In many cases, this is due to scale or complexity. Capital providers look for economies of scale in the same way as other businesses. Yet, the value to the business customer in these cases has become so compelling given that utility rates have increased and installation costs have been reduced. We set out to crack the code on project scale by partnering with developers who can provide replicable solutions, allowing us to underwrite projects that may in some cases be less than $1 million without spending money on lawyers and consultants the way a bank or project finance investor might.
We anticipated this challenge but knew that it would not be resolved by a singular document that must be forced upon every developer and customer. That approach will first lead to no investments because, remember, no customer regards our project as something they have to do, and every solution and regulatory construct is different.
The solution we have created is built into our team, culture, and system of review, from the front-line analyst up to Blackstone, the source of our equity. Everyone understands how we think about credit and project quality and how and why our review parameters factor into the conclusion. The methods of assessment are not only visible and distilled into simple scorecards, but importantly we ensure that everyone understands why they are applied in this way. This transparency lets the team assess projects in real time while building a project score. Within two or three days of receiving a dozen project proposals worth millions of dollars, I have a proposal to accept or reject deals, and in many cases, I’m getting direct feedback from a junior employee as to why they support or reject particular assets. That same feedback is given to the development partner, who is refining their origination process to generate more approvals in future submissions.
This is a process of testing and learning, and an important element is rejection. I tell the team that we should be rejecting some fraction of projects, although hopefully a very small fraction, because that means we are getting the full gamut of what we might accept. An innovative approval process with nothing but acceptances is undisciplined and will not last. And furthermore, a partner who can take those occasional rejections is one who will succeed because it shows they are trying to grow their market and they have enough good volume to make up for it.
How do your renewable energy solutions contribute to reducing carbon emissions and combating climate change?
Our distributed solar and battery assets are displacing power that would otherwise be sourced from a diversified grid. Even when the grid includes significant renewable generation, these distributed resources enable utility renewable generation to be delivered to neighboring regions. Of added importance is that many of our investments are selling power to small and medium-sized businesses that would not otherwise have access to renewable energy. Whether it’s a manufacturing facility, a not-for-profit, or a restaurant in a strip mall, ClearGen has developed systematized solutions for assessing the strength of each project.
Can you share a success story where your renewable energy initiative significantly impacted a community or industry?
Our energy efficiency investments with Kelvin are game changers for urban residents in places like New York City.
I’ve lived in older buildings in New York and Boston that use radiator heating controlled by a central system. It’s standard practice for the upper floors to throw open their windows when the heat becomes unbearable while the lower floors are piling on sweaters and berating the landlord for the cold. Life has been this way for decades, and while newer buildings are better situated, replacing gas or oil-fueled boilers in these vintage housing units is far too expensive. Note that many are serving disadvantaged communities and under rent controls. Urban environmentalists see these as opportunities for deep energy retrofits, but little has happened to date because that type of undertaking is a financial and potentially operational impossibility.
Kelvin has designed an intelligent radiator cover and related solutions that require no structural retrofitting. Residents get temperature controls in their own space. The radiator system no longer needs to bleed heat into spaces where it’s not wanted, so the landlord saves on their fuel bill. And in terms of environmental impact, it’s substantial. These systems reduce localized gas and oil combustion in dense residential settings, in addition to the more global carbon reductions. That is a win for everyone.
What are “5 Things You Need to Know to Create a Successful Renewable Energy Business” and why?
1. Understand your end user. Your product should address their needs, solve a problem they care about, and benefit their bottom line. Some of our projects are on real estate owned by national REITs. In other cases, there are locally owned strip malls or publicly traded manufacturers. There may be some who are concerned about maximizing the property value, some concerned about disruption of site activities, and some who want to tout their green credentials. If a renewable business can’t find a way to accommodate each of these models, the size of your market shrinks very quickly, and your dead deal costs skyrocket.
2. Understand your money. Investors have varying levels of patience, but none is infinitely patient. When I first started talking with Blackstone Credit about their investment in ClearGen, I took note that these are investors with a limited risk appetite and very little patience to fund losses. We undertook some early acquisitions to cover our costs, stayed lean and were quick to reject opportunities that had risks like selling into the open power market without a contract. The last thing I wanted to do was to undermine their trust by serving up deals that they would never agree to.
3. Share your lessons learned. If you sit down with another new business manager and they tell you that it’s been easy, or it’s been obvious, or it all happened as planned, then I’m telling you they are either lying or it’s their first week on the job. If you share your challenges and frustrations, so will they and these can be incredibly revealing. There are some issues that may be specific to renewable energy: regulatory actions, supply chain issues. But much of what you can learn are just typical small business issues that may be the hardest to anticipate: hiring, accounting, cultural development. One CEO took the time to tell me all about their travel expense reporting solution. That kind of feedback can save you valuable time.
4. Understand regulatory trajectory. The electric power industry is heavily regulated in all matters. The physical market for electrons and generating capacity are essentially fictions invented by policymakers. Every asset is both penalized and subsidized due to layers of rulemaking around varying objectives and opinions. We often refer to “pen stroke risk,” meaning the danger that the policy you built your business around disappears with a regulator’s action. In this setting, pen stroke risk is everywhere, it’s only a matter of degree. This requires renewable energy businesses to think carefully about the underlying rationale for a policy and whether it will be sustained. Two features to be wary of are 1) regulatory fatigue, meaning whether or not regulators have the patience to maintain a policy in the absence of adequate results, and 2) over-subsidization, meaning that selected investors are earning or expecting to earn a windfall on the backs of taxpayers and ratepayers. It’s up to a business manager to plot a course that can survive regulatory evolution and to understand that if you are lucky enough to have the wind at your back, you still need to plan.
5. Know that partnership happens outside of a contract. Any new energy business is getting in this market because it’s an exciting time with the promise of innovation and change. In spite of that, business partnerships generally but especially in the energy industry are built on legalistic contracts. You’ve got to know what the contracts say, yes! But at least as important you’ve got to know what your partner wants and how you can stay aligned while the market shifts. And shift it will, which is exactly what is attracting entrepreneurs. We’ve had to revert to every one of our partners at least once to change contracts at their request or ours. It’s never an easy discussion, but it makes for a high functioning relationship when you trust and understand one another well enough to navigate change.
What are the long-term goals for your company’s renewable energy projects?
Our business is about building scale, and we’ve come a long way in that regard. We are actively invested in over 200 projects. We have built an enviable, self-sustaining portfolio in less than four years. We work with some of the most esteemed financial institutions. And yet the long-term goal remains greater scale. The most efficient financing solutions require still more scale and diversification. That is the financial goal for the portfolio.
The business goals leverage this financial goal but apply it differently. As I mentioned earlier, our impact will be realized in the future successes of our partners. I want ClearGen to be recognized as an incubator for promising developers, who seek out a relationship with ClearGen for the partnership, the guidance, the visibility and, yes, the money. ClearGen has to earn a premium return for our investors, and that’s not going to be achieved by financing businesses that are increasingly accepted by the broader capital markets. We have to stay ahead of that and find the next innovators who need us.
How do you engage with and educate the public about the benefits of renewable energy?
I’ll be honest, my marketing budget focuses on new partnerships and new investments. I think the public that is receptive to education on renewable energy is pretty well aware of the benefits. What we hope to provide, and what I think is lacking, is visible evidence that these assets are financially viable for businesses of all types. I want the grocery store manager to see the solar panels and battery at the vet clinic and think, “Why not my store?”
We talk about the gauntlet of approvals that some of our projects have to go through to be accepted by a customer: The operations manager needs to know that it won’t interfere with daily activities. The CFO needs to know that the economics are real. The ESG team needs to assess the impact. And at the end of it all the CEO is asking, “If this is so great why aren’t our competitors doing it?” With every new project that’s out there, a new answer to that question is generated.
How do you measure the environmental and social impact of your renewable energy efforts?
We maintain a Green Report that monitors the growth in our renewable generation and equivalents in other environmental undertakings, such as reducing car usage. We also tally the number of buildings that our projects touch. This is much more exciting than generation because it speaks to the heart of the democratization of renewable energy.
But the thing that matters most to me is the partners we support. In many cases, we are taking innovative entrepreneurs and small businesses who have found success and enabling them with money, yes. But we are supercharging them by providing capital, visibility, and a growth trajectory that will enable them to serve more customers and vault to a level of maturity that would take them much longer with other varieties of financing. The impact that ClearGen is making will be felt well beyond the assets we own today.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
I want to see more solutions that focus on the primary source of the issues we are facing. We have too many solutions looking for problems. A great example of this is the anticipated surge in energy demand. Everyone is pointing to AI and computing activity as a source of need for new solar, batteries, wind, nuclear, fuel cells, transmission lines, et cetera. Capital markets are pivoting to pour money into these infrastructure solutions to meet that new power demand. But what’s the fundamental problem? Keeping servers at a workable temperature. Show me an energy-efficient data center cooling solution, and you can have all that new energy investment actually displace legacy polluting generators.
How can our readers further follow your work online?
Please visit ClearGen’s website at https://clear-gen.com/
This was very inspiring and informative. Thank you so much for the time you spent with this interview!
Rob Howard of ClearGen On How they Are Creating Renewable Energy was originally published in Authority Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.