Q&A: Constellation’s Michael Smith Talks Growth Strategy
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Q&A: Constellation’s Michael Smith Talks Growth Strategy

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 Michael Smith

Michael Smith, senior v.p. of green initiatives for Constellation Energy’s retail business in Baltimore, Md., spoke with PFR about how the company is choosing to grow its 60 MW portfolio. Constellation has added a pair of solar projects with power purchase agreements with municipal utilities to its generation fleet this year. The company inked a 20-year power purchase agreement this month with Holyoke Gas & Electric Department, a municipal utility in Holyoke, Mass., for a 4.5 MW photovoltaic project and bought the 7.8 MW Vineland project in Vineland, N.J., from Community Energy (PFR, 3/18). Vineland has a 25-year PPA with Vineland Municipal Electric Utilities. Smith spoke to Senior Reporter Holly Fletcher about the strategy behind the moves. Why is adding solar generation to Constellation’s portfolio attractive right now?
I think you have to view it through the fact that, first and foremost, Constellation is a load- serving, customer-serving business. We serve as much, or more, power load as anyone in the country, and the solar we’re adding is primarily with our commercial or industrial customers, or new customers. So adding solar generation is really a several-fold benefit to the company. One, we’re earning a return on our investment at a level we’re comfortable with. Two, we’re building deep, broad relationships with industrial and commercial customers who buy other products and services from us, be it retail power or gas or energy efficiency or load response or renewable power from off the grid. It allows us to offer a much more robust suite of sustainable products and services to them.

How would you characterize Constellation’s role in the solar market in one, two, five years?
I would characterize us as being extremely active. We’ll continue to try to move more solar to more customers in more markets particularly as new markets develop for this product.

Are there any specific regions or states that Constellation is especially interested in?
For the distributed solar model, several states work economically better than others. The economic value proposition is that we design, own and operate the system. We then sell the power output from the system at a rate that is less than the customers’ brown power rate, so the customer saves money immediately. That works best right now in Maryland, Massachusetts and New Jersey because of the value of the solar renewable energy credits in those markets. Other markets like Pennsylvania and Ohio have SREC markets, but they are still very nascent, and we’re looking for opportunities to help develop those markets.

From a policy standpoint, we are always looking to encourage other states to take on a renewable energy credit market because the markets have proven time and again that they bring good, long-term jobs to these states in the sustainability market space. Green collar jobs are the future of economic recovery and states that have taken on solar REC markets are seeing an uptick in those jobs.

Are you differentiating between distributed solar or ground mounted?
We will continue to go after our core market of distributed solar systems, rooftop and ground mount at customer sites. In addition we are looking more at investing capital in larger grid connected systems.

Is there a technology preference?
We use several different products now, and one thing that is unique about Constellation is that we let the site dictate the design. Some sites are more suited for thin film products that have less weight but also a lower capacity factor. Some sites are more suitable for photovoltaic. We use a combination of technologies at a given site.

Are you looking to develop greenfield and are you open to acquiring projects and pipelines?
We originate projects through a number of basic channels. One, we have a team of sales people out organically originating new projects with customers, that would be the kind of greenfield part of your question. We also buy facilities from developers who have started the process but have, for whatever reason, decided they don’t want to own them long-term asset. So we are open to looking at very discreet opportunities to buy projects that somebody has started. Generally what happens is that it’s a good economic project, but the developer doesn’t have either the tax appetite or the balance sheet to own it for the long-term.

Is there a sweet spot for investing in solar each year?
I can’t comment on any specific cash or cash allocations we’ve made to the business. I can say that we have internally committed to the solar business as part and parcel of our retail energy business platform. We believe selling this product out of retail energy makes us a unique player in the space and one that has distinct competitive advantages.

Is there a target number of megawatts?
It’s something we’re committed to, but I’m really not at liberty to talk about what our aspirations are in terms of megawatts or dollars.

How are the projects financed currently?
We are doing all the financing ourselves on balance sheet, consistent with our overall corporate capital allocation and financing efforts at the corporate level.

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