Of the many potential constraints facing the renewables industry – not enough transmission, not enough material, not enough tax equity – one has gone somewhat overlooked.
Many in renewables fear the sector may also not have enough people, or at least enough experienced, talented professionals, to lead the massive buildout envisioned in the Inflation Reduction Act (IRA).
“We don’t have enough qualified people to come anywhere close to achieving the objectives,” Saurabh Anand, managing director of Carlyle’s global infrastructure investment team, said during a panel at the 27 April Infrastructure Infralogic Investors Forum held in New York City.
And as new developers emerge and existing firms scale up, the competition for senior-level talent has escalated.
“There has, without a doubt, been wage inflation over the last two years,” says Cassidy DeLine, CEO of EnCap-backed developer Linea Energy. “The IRA has certainly contributed to that because the industry has gone into growth mode, and the talent pool hasn’t necessarily scaled.”
DeLine, who founded the firm in November, leads one of a slew of upstart developers to launch or break off from larger firms over the past two years. These firms have been able to poach talent from more established companies in part by offering equity in their companies.
“When we started two years ago, we knew that there was going to be a war for talent, and it has certainly been true among the leading players,” says Andrew Waranch, founder of Miami-based storage developer Spearmint Energy. “For firms like ours to continue to retain talent, we need to provide a reason for people not only to leave the big firms, but also a reason to commit to working together over the long run.”
Some industry estimates put compensation for senior-level hires, including salary and bonus, up 40% to 50% in just the last two years. There’s some debate around those estimates – John Breckenridge, president and CEO of Arevon Energy, thinks that figure is a bit exaggerated while Joe Amara, president of Joe Amara Executive Search, calls it “a very conservative number.”
Amara gives the example of a recent hire who received a director position despite having never previously conceptualized and completed a project. Five years ago, he expects this candidate’s salary would have probably topped out around USD 135,000 per year; this year, the candidate sparked a bidding war, ending up with a package including USD 235,000 base salary, a 40% bonus, and USD 1m in company equity.
Amara, whose firm works with companies in the renewable energy industry to find high-level talent, says he has also seen “title inflation” – giving senior titles to executives who in the past would have had a lower position – become common in the industry.
The battle for talent seen for senior-level or in some cases mid-level professionals is not reflected in entry-level positions. In fact, there’s a slew of people graduating from college and looking to enter the industry.
“Almost every university has started adding a sustainability focus to every single major,” says Waranch. “When we post jobs right now, we get extremely high-quality candidates from great institutions, all of whom graduate with the word ‘sustainability’ in their degree.”
Driving factors
The wage inflation and competition for high-level talent pre-dated the IRA. In the last few years, a growing stream of new developers and renewables firms have entered the market, driven largely by increasing demand for renewables.
“Last year, there was a bit of a frenzy for a lot of these development platforms, and they were sold at very high prices. And then the IRA happened,” says Breckenridge. “So a lot of people have started development companies or tried to expand their development company with the hope of being able to take advantage of that market for platforms. Those people are definitely trying to hire and accumulate staff.”
Don Dimitrievich, portfolio manager, energy infrastructure credit at Nuveen, attributes this push to three factors: incentives like the IRA, a preference for infrastructure assets due to the macroeconomic environment, and a newfound focus on ESG investing.
Waranch, who launched his firm last Spring, sees the skyrocketing salaries as something of a correction.
“In our opinion, experienced developers were underpaid for probably 10 to 15 years; they just weren't getting what they deserved,” he says. “The fact that society is recognizing the scope of the problem is really what’s driving the [wage] inflation.”
Attracting talent requires competitive compensation across the board, but beyond that, what potential hires are looking for varies.
“There are advantages to being at a large shop where there is stability, where there is cover in a big pipeline,” says DeLine. “There's also typically bureaucracy, and a lack of a sense that you are really out there to take a bet on yourself and to prove yourself. The bookends attract different sorts of people. There's not really a right or a wrong.”
Dimitrievich, who was hired last Fall to build out Nuveen’s North American energy infrastructure credit practice, says recruits are looking to join experienced teams that have “successfully navigated market cycles.”
“Recognizing that we’re in the early stages of a historic opportunity to invest in the energy transition to a Low Carbon economy with many new market entrants, beyond compensation, candidates want to understand the firm’s strategy, capabilities, and experience, and the differentiators that will position the firm to outperform relative to competition,” Dimitrievich said in an email.
A constraining factor?
Amara believes that “without a doubt” human capital will be a constraint in hitting the goals of the IRA. Since Rep. Alexandria Ocasio-Cortez (D-NY) released her plan for a “Green New Deal,” Amara says he has been warning of the limited supply of experienced professionals in the field.
“There are not enough human beings that know how to do this to reach those goals,’” Amara recalls. “So now fast forward to the IRA, I think the very fact that we are getting even C-level positions filled in six days tells you that there is a shortage of talent out there,” Amara added, a reference to his firm’s accelerating the offer process for executives due to an abundance of competing offers.
But others spoken to for this article look at interconnection, transmission and supply chain challenges as well as limited tax capacity as far greater limiting factors.
“When I look at the constraints on the system from our standpoint, labor would not be on the top of our list,” says Breckenridge. “People are looking at the IRA as this kind of cure-all, but I am not sure that's the case. There are still some pretty big restraining issues on this market that do not have to do with labor.”
Breckenridge also posits that the M&A market might soon begin to cool, pointing with some skepticism at the explosion of new development platforms coming to the market last year.
“I am not sure if there is room in the market for all of these development companies to do what they are all talking about doing,” he says. “There has definitely been an increase in hiring in the development world, but I am not sure that it is going to continue, or that it is going to work out exactly as expected for everyone in that market.”
Waranch, on the other hand, believes the explosion of new developers is only just beginning if renewable energy goals are to be met.
“There are probably 20 to 30 new developers in the last 12 months. You probably need 100,” he says.
