Salt Talks

The finance chief of a solar-energy start-up that uses salt as a storage medium tells what it's like to work for private-equity investors.
Marie Leone and David KatzAugust 23, 2010

As a former project-management banker at HSBC and Bank of America, Michael Whalen says he’s been “eating my own cooking” as the current CFO of SolarReserve, where a big part of his job involves raising money to finance solar-energy plants that provide electricity to utilities.

There’s a good chance that Whalen’s metaphorical meal would include a fair amount of salt. Indeed, as the sole licensor of technology spawned by United Technologies’s Pratt & Whitney Rocketdyne subsidiary, SolarReserve develops plants that are able to produce power night and day by storing the sun’s energy in molten salt.

Launched in 2007, the start-up’s aim is to solve, at a reasonable cost, what’s called the “intermittency” problem common to other forms of renewable-energy production: wind power, for instance, may supply energy at inopportune times of the day. “Frequently, in much of the United States, the greatest wind load is in the wee hours of the morn when that power is actually not particularly valuable,” says Whalen. The same is true for other forms of solar power, unless the producer spends heavily on additional storage technology.

SolarReserve’s claim to fame is that it ties up energy collection and storage in a single package that can dish out power during and between peak hours. The technology, which uses thousands of sun-tracking mirrors (called heliostats) to focus sunlight on a receiver mounted on a 600-foot-high tower, has had its detractors, Whalen acknowledges. The critics say the system doesn’t have the operating history of other solar technologies. For his part, the finance chief responds that United Technologies is a solid name and that the technology has been tested in previous U.S. Department of Energy-funded projects.

While those projects weren’t commercially viable, six private-equity firms, led by US Renewables Group (a $750 million investment fund focused entirely on the renewable-energy industry) and including firms owned by Citibank and Credit Suisse, believed the technology was trusty enough to supply SolarReserve with the seed money to commercialize it. Last month Whalen sat down with CFO editors to talk about what it’s like to work for the private-equity firms and other aspects of his job. A condensed and edited transcript of the conversation follows.

What’s it like to report to private-equity investors?

Based on their investment in other like enterprises, they provide a lot of feedback to our management about what they see on the renewable-energy and capital-markets horizons.

Michael Whalen SolarReserve

What I am freed from is quarterly reporting requirements. I have owners who appropriately want to receive good-quality information on a periodic basis. But it’s much more of a two-way communication.

What do you mean by “two-way communication”?

We get real-time feedback on our reporting. If an investor wants more information than we’re providing him or her with, it’s the nature of a privately held company to supply it. My team is there to make sure that we meet those requirements.

Obviously, in a publicly held company, that’s a different relationship. You put your reporting out there and you stand by that. In contrast, ours is a much more dynamic environment in which investors may call me to review information and make sure they understand it properly. Or an investor might ask us to perform additional analyses so that he or she understands what’s going on. We make sure we’re treating all our investors the same way at the same time, however.

Do you report according to U.S. generally accepted accounting principles? If so, why?

We report in U.S. GAAP because it was a requirement in our formation documents. But even if it weren’t a requirement, we would use GAAP anyway because it’s important for us in terms of both future investors in a project and eventual access to public markets. We don’t want to go about restating our entire costs. We did a lot of front-end investment in our audit requirements and spent a lot of time on our initial audit.

Can you provide examples of information that you communicate to investors that goes beyond GAAP?

As a development-stage company, our revenues are ahead of us. They will come with the completion of the construction on our facilities. So it’s not a metrics-based dialogue about EBIDTA, sales margins, gross margins, or other metrics associated with the performance of the business.

Our milestones are development milestones. Are we hitting the contracts when we expect to hit them? Are we adding to our project pipeline in the quantity that we expect? As with CFOs in all development-stage companies, a lot of my attention is focused on cash burn rates. How are we using the resources we’ve raised? The question is not necessarily about spending too much money; if you’re spending too little money, it may mean that you’re not hitting your milestones.

How did you get into project finance?

When I worked at Mobil early in my career, I was put on a corporate rotation, moving from the controller’s department to information systems management, and then into finance. At finance, members of the department said, “Hey Whalen, we heard you know something about this thing called Windows and that you’re able to operate this weird program called Excel.” A partner on a project in Saudi Arabia had given them the model for the project — modeling is core to doing project finance — and nobody could figure it out. Since I had recently worked in information technology, they thought that I must know how to operate it. I had never done it before, but I was able to figure it out pretty quickly. That was my introduction to project finance.

It was the most enjoyable aspect of my corporate activity at Mobil because it’s the synthesis of all the activities that make up the business of a company. The legal, technical, business-development, and construction aspects all come together in project finance, and they all have to be able to line up properly to convince risk-averse lenders and risk-averse investors to provide financing.