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Q&A: Kevin Walsh, GE Energy Financial Services – Part II

Kevin Walsh, managing director and group head of power and renewables at GE EFS, talks with Editor Sara Rosner about the growth ofdistributed generation and why photovoltaic solar is still best for achievingeconomies of scale. Since Walsh took his current post in 2006, GE EFS hasinvested an average of about $1 billion per year.

PFR: Solar makes upthe second largest area of investment for GE EFS after wind. I know GE EFS isinvolved in the Desert Sunlight project. What are your thoughts on large,utility-scale solar going forward?

I still think some of these large projects will get done.Desert Sunlight is a very large project, one of the largest in the world at 550MW. We still look at utility scale as anything over about 5 MW. Moreutility-scale projects will get done, but will they be at 550 MW? There’s a bigland-use issue for some of these big projects. You need the transmissioninterconnect to accommodate a project of that size. 

One of the benefits of solar PV is that you can reallyachieve the economies that you’re looking for without having massive scale. Forexample, the Desert Sunlight project is still under construction, but it’salready generating more than 375 MW of power, or has the capability to do so,because it’s modular. You can start plugging in the panels and generatingelectricity almost right away. Projects in the 20, 50, 100 MW range willcontinue to get built because you don’t need the scale of 550 to achieve someof the economies that you’re looking for.

PFR: What aboutfinancing these smaller, utility-scale projects? Do you see these beingfinanced as standalones or in portfolios? Is that something we’re going to seemore of?

There’s a desire to package these, just like we’re seeing onthe residential side. These get warehoused for a period and then they get putout to market for financing once they’ve been aggregated into a pool oncethere’s not just a meaningful size, but some diversity.

I think that model has worked and will also work to some degree on thecommercial and industrial side. We did a project a number of years ago with SunPower, where we pulled together fiveseparate commercial and industrial projects into one financing. That’sobviously a pretty small pool now that the commercial and industrial market hasseen more growth. There’s more opportunity for pooling and financing that way.

PFR: What is GE EFS’take on distributed generation in terms of development and financing?

We’re traditionally a utility-scale investor and we’llcontinue to focus on that, but we are looking at these other opportunities.We’ve done the SunPower transaction but we’re looking at other opportunities onthe distributed side. We certainly recognize the growth that’s occurring inthat area and think it’s of potential interest to us.

PFR: Are there anyother areas or targets for growth that GE EFS that differs from its strategy inthe past?

GE Energy Financial Services is a significant investor inenergy writ large. We continue to invest in oil and gas reserve-basedtransactions and midstream assets. Those are not areas that I personally focusin, but that the business is interested in.

I’m responsible for the thermal side of our investing activity. We continue tohave very strong interest in investing in that area and investing globally.Canada is of interest to us as well asLatin America. I mentioned India andEurope. In Japan, we’re active right now pursuing some solar opportunities.We’ve seen Japan pivot to more renewables post-Fukushima. We’re a globalcompany and a global investor, so we’ll look for the right risk-rewardopportunities.

PFR: Can youelaborate a little bit more on GE EFS’ strategy in financing and developingrenewables in Latin America? Canada?

We’re interested in both areas. Obviously, Latin Americacomprises many different countries so we’ll pick our spots where we see theright risk-return profile. Mexico appears to be particularly interesting rightnow.

In Canada, we have successfully invested there. We’vepurchased a solar project there from FirstSolar. We have also invested in a wind farm there a few years ago andahydro project. We like the business climate in Canada.

PFR: What types ofprojects hit the sweet spot for GE EFS in terms of equity investment or anykind of project participation?

We tend to be on the utility-scale side. We’re looking toput, for our own account, $50 million or more to work in a project. Wecertainly love it when a project is using GE equipment. We think it’s the bestequipment in the world. We don’t only invest in projects with GE equipment, butwe look for opportunities to do so, where we can.

It’s really what the right risk-return equation is for us.We’re looking to be a catalyst for growth, not just here at GE Capital, but also on the industrialside of GE where our equipment brethren make very good gas turbines and windturbines and everything else that they make.

PFR: Do theseprojects necessarily need to be contracted?

Not always. Obviously, we tend to prefer contracted deals.There are degrees of contracted. For example, most of the wind deals that getdone in Texas don’t have 20-year contracts. They have 10-year or 12-year powerhedge agreements with a financial counterparty. We have been participating inthose projects.

PFR: What is GE EFS’appetite for tax equity? 

We’re doing tax equity selectively in connection with GE equipment.We have tax capacity but we obviously use it selectively. Generally it’s goingto be in support of a transaction that has GE equipment.

PFR: What are some ofthe challenges you foresee for financing and developing renewables in theAmericas in the near-term?

The industry has done a fantastic job in the last four orfive years in improving their technology, lowering the cost, becoming morereliable and efficient and grid friendly –all of the things you need to be agood customer to our utility customers. That needs to continue. The pace ofinnovation is critical to remain competitive.

On the capital side, as projects continue to perform and dowell, I think the capital will be there. This is a yield-starved world andpeople are looking for long-term, safe investment and that’s what theseprojects offer but they obviously need to perform. 

Often times, the industry complains about the on-again,off-again government incentives scheme. Having some line-of-sight forreasonable future expectations of what’s in place allows the industry toinvest, not just dollars, but time and resources. Those are some of thechallenges I think the industry has in front of it.

Go to for the first installment to read aboutWalsh’s outlook for wind in the rest of this year and beyond.