Henry Makansi knew that the One Big Beautiful Bill would likely be a blow to the U.S. solar industry. But the knowledge that valuable tax credits were likely to sunset didn’t prevent Kimmeridge Energy Management Company, where Makansi is a managing partner, from investing in community solar.
Today, 38 Degrees North, which was founded in 2015 and focuses on development-stage and construction-ready distributed generation and community solar projects, announced it has raised new corporate growth capital. The new capital, from both Kimmeridge and Climate Adaptive Infrastructure, adds to the company’s 2024 raise, and brings the total to above $230 million.
The vast majority of the company’s funding comes from the new raise, according to managing director Chris Bailey. And 38 Degrees North is also acquiring the community solar developer U.S. Light Energy and its pipeline of over 250 megawatts. (U.S. Light Energy was also backed by Kimmeridge.)
The news comes at a complicated time for solar and distributed renewable generation platforms, which have been navigating months of policy uncertainty and market volatility. As a result of the OBBB’s passage earlier this month, clean energy tax credits are scheduled to phase out at the end of 2027. Additionally, starting in 2026, some eligibility for solar projects will be subject to “foreign entity of concern” cost thresholds, which will be particularly hard to navigate for an industry like solar, entwined as it is with Chinese manufacturing.
These provisions are inevitably going to create some setbacks for the industry. But, according to Makansi and Bailey, it’s nothing a well-capitalized company can’t navigate.
“It creates disruption — and in the past couple of years, there’s been lots of disruption between interest rates on the debt markets and overall macro headwinds,” Bailey said. “But it’s an important time to be well capitalized and be able to continue to move faster, to have real assets to put in the ground.”
Potential advantages
And as a community solar developer, 38 Degrees North might actually have some advantages that utility-scale solar developers, for instance, don’t.
For one, community solar projects tend to be much faster to deploy than larger projects. Because they connect into local distribution systems and not transmission systems, they are often able to skip the long interconnection queues that slow many new generation projects.
“So it’s one to two years development timelines on interconnection versus the four years it can be on the utility-scale side, which, particularly now that these investment tax credits are sunsetting, becomes even more critical,” Makansi said, adding that Kimmeridge is “pleased” not to be a major utility-scale developer in the current environment.
Most importantly, community solar’s rate structure is tied to retail energy rates and their fluctuations, as opposed to the wholesale pricing or PPAs of many utility-scale projects. That makes the sector ideal for benefiting from the steep rate increases that are expected as a consequence of unprecedented electricity demand growth and OBBB’s potentially stifling effect on new generation.
“We’re already seeing in many markets that retail energy prices are rising faster than any of our original investment predictions,” Bailey said, pointing to the PJM Interconnection’s territory, where bills are expected to rise by more than 20% this summer. “So that does help offset some of the uncertainty or loss of investment tax credits.”
Makansi agreed, noting that while this is obviously terrible for customers, community solar’s relative rate freedom is potentially a boon for investors.
These advantages, paired with the fact that 38 Degrees North has been around for a while and has solid corporate growth capital backing, have the company believing the upcoming challenges will be manageable.
“We’re in that phase now where investors may be more jittery than they need to be, because the rules are out and we know what we’re dealing with,” Makansi said. “It’s not as bad as our worst nightmare, and it’s navigable, but it’s going to [be up to] the teams that have the ability to execute.”
This, of course, is not the case for everyone. “When cost of capital re-rates, as it is now with the regulatory complexity, the entry barriers go up,” he added, explaining that small developers will likely struggle to raise money to build the projects they’ve already started developing. While this is not good for the industry as a whole, it’s an opportunity for 38 Degrees North, which is well-positioned to swoop in and buy options in those projects itself.
