The transcription of the video is below. 

Philippe Hartley’s background

Kerim: Hi, everyone. This is Kerim, Kerim Baran with SolarAcademy. Today, I have with me, Philippe Hartley, of cleanfi.com. Philippe and I are going to talk about one part of the solar industry that is still not been fully cracked, and that is the small and medium C&I, commercial and industrial segments of solar. And Philippe has been operating there in the solar industry for a long time, just as I have.

And so we’ll just get into it. Welcome, Philippe. Nice to have you. Thank you.

Philippe: Hey, Kerim. Delighted to be here with you and with all of our friends who are tracking this amazing effort of yours at SolarAcademy.com to share knowledge, and we’re very much in support of that. And that’s the reason we’re doing this.

Kerim: Thank you very much. So, Philippe, let’s first talk a little bit about your background. Tell us a little bit about your history. I know, like me, you are an implant in California from the other side of the Atlantic. And tell us, you know, how come we’re here in California talking about the solar business right now?

Philippe: Yeah, and that’s a long story, with lots of juicy anecdotes. I’ll spare you the early days, but you know suffice to say that, you know, I’ve had a few careers, right? I’m kind of an entrepreneur by nature, and I’ve touched on a lot of things in my life, but around 2004, I was really basically, feeling the guilt of spilling jet fuel all over the planet, for the majority of my life.

And I wanted to get into a career that would allow me to find both gain – personal gain and personal satisfaction, personal fulfillment, while at the same time, giving something that was tangential that left the place better than I found it. 

How did CleanFi come to exist?

So it was obviously so that it wasn’t quite as evident then, because this was 2003. It took me a while, you know? I sat around the pool a little bit, kind of mapping out the future of the 21st century. The millennium had just come around, and it seemed like energy was going to be one of the big questions of the next 100 years. And solar became kind of the evident thing for me to do.

So I got a job as a solar salesman. A year later, created my own company, and I worked, basically, got my contractor’s license, which was really weird because I’m not a contractor by nature. Got my electrical and general contractor’s license and opened up a solar shop in 2005. It was called PHAT Energy, and I ran it until about 2014.

In the process, we were doing mostly residential solar. You were building your distribution company at that time, Kerim. And you remember that financing in resi really came along. We had, you know, the concept of PPA was developed at the large scale commercial, and it entered the residential business as well and PPAs exploded and that really became the solution.

Sandwiched in the middle was small to medium commercial. And it never had really any attention. And lo and behold, we ended up getting a couple of small commercial jobs, and it actually almost broke us, just because we were left with unpaid bills, in unpaid government, you know, subsidies and all kinds of things.

And I thought, you know, I think I’ve given, around 2014, I thought I’ve given enough to the kind of the contracting side that scaling side of residential solar. I’m going to kind of get back to my roots and get to financing. So at that point, really started working with different financing mechanisms.

Worked for some PPA companies, worked for some C-PACE companies, et cetera. Learned the business and that led to a really, the crux of the problem, when I went on my own with what is CleanFi’s parent company called Clean Financing LLC. We were trying to, on desktop, solve the scaling issue of small to medium commercial solar, and we found ourselves spending our entire days, doing proposals on spreadsheets and sending them to contractors who ended calling us up and wanted to know what it would look like if it were $4, 000 more or less, what it would look like if it were with this product, instead of that product, et cetera.

And we’d realized that in order to address the enormity of the problem, we had to automate that process and that led to CleanFi as a company.

Why is Small to Medium C&I Solar such a challenge? How is it like a Rubik’s Cube?

Kerim: I see. So let’s dig in a little bit into like, why is small and medium commercial and industrial solar such a drag? In one of our earlier conversations, you likened it to a Rubik’s Cube. And like – yeah, there you go – that’s your Rubik’s Cube. So tell us a little bit about like, what is the big uncracked nut in this segment of the industry? And why is this such a challenge compared to residential and utility scale solar? 

Philippe: Yeah. Well, let’s just look at residential for a second. Well, let’s get utility scale out of the way. Utility scale, there’s a massive offtaker. There’s massive security there. Essentially, the margin involved in this project is so large that people are willing to really roll their sleeves up and spend a lot of time on a single problem, a single project with, you know, a couple of funders who understand the risk factor and the offtaker who understand that very specific product, which is essentially, selling energy to a utility.

So that is both because of its size and because of the consistency of the transaction and the offtaker credit. That is not a challenge. In fact, that’s the reason for it. There are so many transactions at that level. 

On the residential side, you essentially have three questions you have to ask the offtaker. What is your credit score? Do you own your building? And is there a history in your background of bankruptcy? And based on that, you know, you can very quickly interpret what credit risk there is, and therefore, how much the financing should be for that particular party.

You can do it literally, instantaneously, because it’s basically all houses. So when you get into the small to mid C&I, you get into a problem of a massive number of variables, and that’s where the Rubik’s Cube come in. Let’s talk about those variables. If you look at the Rubik’s Cube as an example of all the different factors that impact the decision, we will get very quickly, an idea of the near-impossibility of actually solving this conundrum and why we find it so fascinating.

Let’s start with red. Where is it? Where in America is this project? Why is that important? Because funders are going to be anything from community development funds, credit unions, specialty banks. There are going to be C-PACE programs and organizations, et cetera. So where it is in America, and there are a lot more than nine squares, right?

It’s an enormous number of entities that respond to the first question, where’s the project? What is it? Is it solar? Is it solar per storage? Is it solar per storage per roofing? Is it a microgrid? Is there LED? Is there efficiency involved, etc? So you can imagine, you know, we actually fund hundreds of improvements on the platform, but let’s just say there are only nine, which is really modest. 

How much is it? Is it less than $100,000? Is it less than $250,000 but more than $100,000? Is it less than $500,000, less than $1,000,000 blah, blah, blah, etc? What type of entity is the offtaker? Is it the mush market? Is it municipal? Is it private school? A nonprofit? Is it a place of worship? Is it a golf course? Right?

Is it an industrial space that’s used for cannabis? Is it a blah, blah, blah? Again, nine doesn’t contain the incredible number of entities that it can be. What type of building is it? Right? Is it a building that is owned by partnership? Is it a building that is owned by a major corporation? Are there multiple corporations?

Is one of the owners bankrupt in that corporation, right? Et cetera. So again, we’re filling far more than each of these sides of the Rubik’s Cube. And then finally, what is the tax situation of that entity? Right? Is it going to claim transferability? Is it going to need construction financing for direct pay?

Does it need to pay back the ITC early in the loan without penalty? What are the circumstances that are specific to that entity? So if we look at all the different combinations that are contained in a Rubik’s Cube of possibilities, assuming there are only nine combinations on each side, Kerim, would you care to take a guess at how many different combinations we have contained? 

Kerim: That’ll be in the thousands. 

Philippe: Hundreds of thousands, right? 

Kerim: Hundreds of thousands. Okay, I was thinking thousands.

Philippe: It’s hundreds of thousands. 

Kerim: Okay. 

Philippe: I would like you to consider writing this number in big letters.

Kerim: It’s like 9 to the power of 6, at the very least here, but it’s, you’re saying each side has more than nine possibilities, so it’s got to be a bigger number than that.

Philippe:  If it were only nine possibilities on each cube, Kerim. 

Kerim: Yeah. And there’s probably more than six facets to each project, too. Yeah. I get that.

Philippe: Exactly. So if there were only nine combinations for each, I’m going to give you the number. Okay? It’s going to be a long one. Are you ready? The number of combinations, if only nine possibilities existed on each side would be 43 quintillion, 252 quadrillion, 3 trillion, 274 billion, 489 million, 856, 000 combinations. 

Kerim: I get that. That’s a complicated problem.

Philippe: That is the reason small to medium commercial financing is very difficult. And most people fail to understand it because they come from the residential side or the industrial side, the utility side, and they want a fast answer. So that’s the problem we’re addressing.

How does CleanFi solve the C&I Solar Financing problem?

Kerim: So how do you solve this problem with CleanFi?

Philippe: Well, first of all, a lot of brain cells have been spent, you know, trying to figure that out. Obviously, we start with a low-hanging fruit, right? Obviously, we start with the most common. But what makes it complex is, you know, per one side of the Rubik’s Cube, the funders themselves all have different biases. They work in different mechanisms, which we’ll go over, you know, in a little bit, but different ways to fund the projects, right? Different, you know, third party ownership. Is it – who takes the risk, all that kind of stuff? 

Then within each, there are different funders that are interested in each different subcategories of problems. So we have to identify these funders and bring them in. 

Kerim: So in a way, you create a solution that is dealing with three different major stakeholders – the funders, the developers/EPC/installers, and the property owners.

Philippe: Absolutely. Dead on. We have three bosses. 

Kerim: You have three bosses on your platform. 

Philippe: Yeah. 

Kerim: Got it. So I guess the way you solve this is, and I know a little bit about CleanFi, is you create a platform that interacts with these three bosses and services their needs. Would that be a fair way to point?

Philippe: Yeah. That’s exactly right. So we obviously can’t catalog all the projects that are going to be coming in America because we don’t know what’s coming. So the universe is there are six million commercial buildings in America, and 95% of them are less than 50, 000 square feet. That means that’s how we see it. 

CleanFi’s customers Funders, EPCs, Property Owners and key offerings Loans, PPAs, Leases, C PACE

Kerim: And probably 99% of all of these still don’t have solar on them despite the fact that we are now at 6% or 7% of residential penetration for homes, right? 

Philippe: That’s right. And so we know that there’s just a whole bunch of projects that are waiting to come in. We don’t know what these projects are. So we’re trying to get as many funders that are going to cover as many different types of scenarios as we can. But in order to be able to return instantaneous proposals to our friends, the contractors, we have to bring these funders onto our platform and mimic their product like avatars. Right? It’s a product that does this in response to this kind of inquiry, et cetera. So we have piles of products. 

So as a contractor enters a project onto the platform, as they put in the information we were talking about, where is it? What is it? How much is it? What type of entity will own it? What kind of building is it? Funders are literally or funding options are literally taken off the shelf and put back on the shelf, depending on what each question is. And so that’s the way we do it. We actually contain fully-baked funding solutions of holding, as if they were ours, but they’re not ours. They’re somebody else’s, but we build them on our platform, so that we can return then an instant series of options in terms of mechanisms and competing funders within each mechanisms instantly in an actionable way to the user.

Kerim: Got it. And so do you – I guess being in the finance, funders is one of the most important because you’ve got to have financing to be able to finance people. So that is who you go after probably first, because it’s a platform. Platforms usually have the chicken and an egg problem for two sides of the marketplace. In fact, there are three sides to the marketplace in a way. But do you go after the funders first and then get the PCs who get the property owners, or do you go after the property owners?

How does that dynamic work? And then what do you do for each one of those stakeholders? What do you offer? I guess I know a little bit about your products, but it would be probably useful to talk a little bit about the key products you offer, as well. 

Philippe:  Yeah, absolutely. So as to how we do it, first of all is like these guys that you see on the 3rd Street Promenade in Santa Monica standing on one foot or a unicycle, juggling three balls at the same time. We’re doing that, right? We’re, oftentimes, actually responding to a scenario that we’ve never seen before and going to find a funder to respond to that scenario because we hadn’t anticipated, right? And our job is, you know, and I’ll get to your question about different mechanisms, but our job is basically to create a narrative for each project. 

But how do we present this project to a funder based on the realities of that project? So we try to automate as much of it as possible. At some point, we actually have to get on the phone and talk, and we can’t automate this process because of the reasons we talked about. What we’ve done is to automate the process of getting what we call indicative proposals, which are real products that fall in the category of funding that you need to get this project funded, and then the details. 

So we offer different mechanisms because there are so many circumstances that we need to offer multiple mechanisms, since we don’t know yet what the underwriting reality is going to be of that client. So we say we try to offer a PPA for each solution, if we can. And the reason for that is that it’s third party owned. 

We try to offer a C-PACE solution if we can, and the reason for that is that it’s an entirely different credit underwriting process that’s really based in the value of the real estate instead of – 

Kerim: Instead of the owner’s credit, you really look at the credit of the property itself for the commercial to pay for the financing, which is very innovative. Yeah. 

Philippe: Yeah. If we can – it has its own disadvantages, by the way. And every one of these has disadvantages and advantages. We have capital leases. Capital leases are fabulous instruments. They’re essentially like equipment loans. So it has the word lease because there is an implication of lien. There’s a lien implication for the lender, which the bank doesn’t have. You’re not liening the company that borrows, you’re liening the equipment. So it’s called the capital lease. And it’s also usually third party funding, as opposed to being a bank funding. 

So there’s a capital lease. All the tax benefits of the capital lease accrue to the owner of the system, the property owner, so it’s really wonderful. Its disadvantage is that often you can’t get as long the term on it, as you would like. We’re working on that. 

Then there are loans, obviously. Loans are usually, very difficult to get affordable long-term loans without massive dealer fees, which we don’t believe in. So because we’re trying to have zero dealer fees, our loans are usually loans that are geared towards equity, equity types of projects, low-income housing, that kind of stuff, tax investors and energy as a service. So those are the kinds of broad categories. 

What are CleanFi’s most repeated messages to each of its stakeholders?

Kerim: Got it, got it. When you interact with your, whether it’s their investors or the EPC/installer, channel partners or property owners, what are your most repeated key messages to each one of these groups? Do you find itself repeating on a weekly basis probably?

Philippe: Well, I really appreciate that question, Kerim. Actually, it’s very useful because of the message that we give. So let’s talk about each of our three bosses, right? Our contractor and EPC partners what we say to them is, look, don’t be afraid of financing, despite the fact that it’s so difficult. 

We’re taking that on. Okay? But come in with the tools that we’re giving you right up front. Put your project on the platform. See the possibilities. Come in to see the customer with a proposal that includes all these possibilities. Let the customer know that you’re not just interested in ramming a solar solution down their throat.

You’re interested in improving their balance sheet. You’re interested in improving their business. Come to the business with a businessman’s attitude rather than a salesman. 

Kerim: In a way, you are a business consultant/teacher. Like you’re helping the installer become a more sophisticated business consultant to their customers by offering what you’re offering to them. Do you see that?

Philippe: Absolutely, Kerim, because if you are entering – there’s a tendency for people that are moving from resi into small to mid commercial to just think in terms of, we’re going to show you how to save money every month. A business doesn’t just think on how to save money every month. Yeah, operating their operating cost is important.

But where does the capital to make that happen come from? Is it on the balance sheet? Is it off the balance sheet? Should it be – does it matter if they are actually on a positive cash flow track? Some businesses really don’t care about that because they’re doing a write off. And they need the write off, so they don’t care.

They’ll do a five-year financing because then they’re seeing the runway after that, and they want to get to that position. So don’t assume anything that you assume in resi. Go in there understanding that it’s a three-dimensional universe, the universe of business financing. And we’re there to help.

Kerim: What about to the investors? And then do you interact with the property owners much? And if so what’s the key messages you give them?

Philippe: Yeah. So that’s really one of the interesting challenges, Kerim. And maybe you and our partners out there, who are listening to this, can help us, can advise us on. Because there’s a trust concern from the EPC contractor, right? They see this blank entry field that asks for an address, right? That’s the first time – 

Kerim: when they are filling their project information on your platform, right?

Philippe: That’s the first thing we ask for is what’s the address? And that makes everybody really nervous, right? And then once they put the project in and then they get results, then they call us up to help me interpret these results sometimes, you know, until they learn how the platform works, et cetera, they might call us. 

And then we say, look, it really would behoove us to all get on a call with the, you know, the owner. Well, these people that don’t know us, second jitters, right? Wait, wait, wait, wait, wait. No, we’re not ready for that yet. We’re going to control the dialogue. 

But the problem is that they may not have the information they need or have the knowledge of what they don’t know, in order to really have that dialogue constructively. So we want to come in as their sidearm on the finance side early. 

Kerim: Right, right. So this is that challenge of establishing trust with the installer/EPC, to have you on their side as a trusted finance advisor. But what you’re saying is, many times those folks are a little cagey in the beginning of the process when they start working with you.

I assume that goes away after they’ve done a few projects with you. I mean, I remember stories when we were at Civic Solar. You know, many of our customers back in the early 2010s, we would ask them to wire money to us before we even shipped the products because we didn’t have the capability to do a credit check on them, in most cases.

And they were like, really? And then they would do the first project. And they would get comfortable and do the second and the third. 

How CleanFi gains the trust of EPCs? Rules of Engagement when many competitors are in one project?

But so in your case, it’s a big deal for an EPC installer to share their customer information so early on, so how do you gain their trust, and what kind of rules of engagement and so on, do you –

Philippe: You know, I mean, there all kinds of, you know, we’re glad to sign NDAs. We’re going to actually, you know, one of the things that we’re going to be adding to the site, now being, you know, it’s the end of September 2023. I don’t know when people would be listening to this, but at some point, we’re going to add a preliminary NDA in the site. So before you enter your address, we’ll have an NDA that says you know, we’re not going to share this information with anybody. But the truth is that, you know, at any given time, sometimes we get the same address entered three times by different contractors, right?

If we have to treat each one of them as an individual project, would basically like an old, you know, think of the old days of banking in small city America or anywhere for that matter, where there’d be a banker that sits on Main Street right off the main square, and he knew everybody that walked through in front of the bank through the glass window. He’d see them, and he’d know exactly what their financial situation is.

But the reason they wore gray suits and gray ties is because they wanted to be like an undertaker. They wanted to know that those secrets would go into the tomb with them. Right? But we’re absolutely, you know, worthy of trust. And that’s essentially what we try to gain, as well. Because look, we’re not going to last a day if you hear that we’re sharing information with everybody. That’s not the way we’re going to build our platform.

How CleanFi acts as a virtual Finance Dept?

Kerim: Yeah. Right. Well, as we conclude, do you want to share anything else as to how CleanFi acts as a virtual finance department or EPCs, installers? What are some other key messages that you might want to leave the investors with that might want to become funders on your platform or property owners that are even aware of, you know, your existence and how you are actually facilitating the process?

Philippe: Yeah, I mean, that, you know, that’s a great question because the way we act as a virtual finance department is it depends who you are in the marketplace, right? We solve problems for a lot of different people. If you are a contractor, just bookmark us and make it as easy, you know, but we took our approach from the resi work, you know, not blind to difference in complexity, but we felt EPCs want – they don’t want to have to make 10 different phone calls and ask each of those people to change the proposal five times.

They want to be able to do it themselves right now and get actionable information. So we’ve created the platform. It’s free to users, free to contractors. We do not share your information. Go on there, use it, you’ll have an archive of your project. You can come back later and update that project because all of our funders float on their 10-year, 20-year, five-year treasury yield, depending on their product.

So numbers change with time, with interest rates, et cetera. You can modify your project. You can forward any one of the proposals to your property owner, to your client. So use that as a tool. That’s the first way we’re a virtual finance department. Think of us as the person sitting alone at a desk across the hall from the sales room, you know, behind the door, buried in files, right?

And you walk out on your way to a sales call. You open the door, you slam down a file, and you say, find me three finance solutions for this project now, right? 

We’re that, except that we’re indefatigable. We never get tired, and we have instant solutions to everything you ask for. So use us. That’s for the contract.

But there are a lot of other people that use us well. Obviously, we’re an easy way for funders to get, you know, pre-baked projects with applications, with documents, et cetera. We have a white label version of what we do. We’re about to release a Version 2. 

We’re finding a lot of interest from residential contractors that don’t have a solution for commercial financing, and that basically want an integrated solution that fits into their website that allows their contractors to stay within their environment and do both residential as well as commercial. And then we’re also allowing funders to be able to use our platform so they can have instant proposal tools that just quote their products only, not the competitive market, but just their product for, you know, just a fraction of the cost of what it would cost them to do it themselves. 

So we’re trying to really serve each one of our masters, fully with as many solutions as possible. But essentially, our product in the end term, what we make our money doing is by packaging financeable, pre-baked applications that come into a funder that happens to want exactly that application.

Kerim: Really this is a great, great summary of your very powerful platform, CleanFi that is working on cracking the nut for this small to medium size commercial and industrial segment. I would love to continue these conversations in the next one. Perhaps we can do a quick demo of the platform from an installer’s perspective, maybe even a funder’s perspective and get into a little bit more of the details of your various offerings.

Philippe: That’s right. I’d love to talk about the whole direct pay and transferability market, at some point, if you’re so inclined.

Kerim: Yeah, great. Let’s do it. Well, thank you very much for your time and all this wealth of knowledge, and we will continue this very soon. Thank you, Philippe.

Philippe: Thank you, Kerim. I’m excited about being part of this with you.

Kerim: Thank you.