Financing more solar energy

By Cate Long
October 15, 2013

Most discussion of solar energy in the U.S. is focused on the large, centralized photovoltaic installations that are going up in the sunny parts of the country. But there is another rapidly growing area in site-based residential or commercial solar installations. Traditionally these small installations have been hard to finance, but there are some powerful new mechanisms that may accelerate growth.

One new approach follows the mortgage origination process where bundles of small financings are gathered and then pooled into securitizations. Standard & Poor’s Director of Utilities, Trevor D’Olier-Lees, projects that the cost of residential installations on a million homes would be about $16 billion. 45 million suitable homes could use $750 billion to equip them with solar power. D’Olier-Lees says that banks are not the best providers of these long-term financing assets, but the loans would make ideal securitization vehicles. Some companies are starting to work on these structures. From Green Tech Media:

No rooftop solar-asset backed securities have yet been issued. But ‘multiple residential and commercial solar developers such as Sunrun, SunPower and SolarCity are likely working on issuing asset-backed securities over the next three to nine months,’ Credit Suisse reported in its February 25 Solar Snippet. Other third-party leasing companies like Clean Power Finance and Vivint, the report added, are also showing strong enough growth to participate.

‘We believe that solar securitization for residential solar projects will happen in 2013,’ Credit Suisse predicted. Early investors will be insurance companies looking for secure long-term investments.

Another important approach to funding site-specific solar installations is “on-bill repayment” (OBR), where repayment for the solar hardware and installation is bundled on the user’s utility bill. From the Clean Energy Finance Center:

OBR is an important mechanism to bring private capital into the market to fund clean energy loans. Utility customers repay these loans through charges on their monthly bills. This is a new adaptation of on-bill financing (OBF), which uses utility capital rather than private capital or other support.

‘There’s an increasing dialogue about injecting third party capital… so programs can scale,’ said Mark Zimring, a program manager at Lawrence Berkeley National Laboratory. He is writing a national report that will explore lessons learned from on-bill programs and recommend next steps for states.

Zimring said OBR programs are raising a variety of questions. These questions include whether the financing should be structured as tariffs or loans, whether non-paying customers should have their services disconnected, whether programs should be required to yield certain financial results for customers, and whether credit scores should be used for underwriting.

Nationally, programs are using multiple tactics to attract private capital, Zimring said. Some are aggregating loans by setting up warehousing entities. Others are issuing debt that is secured by loans.

Four states – California, Hawaii, New York and Connecticut – are currently developing and refining OBR programs that may serve as models for other states.

On-bill repayment may have the potential to finance solar installations for customers with lower credit scores. States could play a role in helping create these programs. California has had a long-established way to support alternative energy programs, although some think it is not well focused:

‘California is spending a lot of money on something with slim evidence of how effective it is,’ Levinson said.

The Public Utilities Commission estimates that the fees for the various funds have added $24 annually for an average residential electrical user and another $12 for gas customers.

The U.S. Energy Information Agency reported recently that California’s overall rate of 16.2 cents per kilowatt hour was the nation’s highest, excluding Alaska and Hawaii.

California does an outstanding job of tracking how many residential solar installations it has:

A new report tracks the cost of subsidies for solar users in California:

A new California Net Energy Metering report, commissioned by the California Public Utilities Commission (CPUC), found that electric utilities customers will subsidize solar customers [for] about $1.1 billion per year by 2020. The report was prepared by the Energy and Environmental Economics (E3) consultancy and evaluates the cost-effectiveness of the true cost of solar to utilities. The San Jose Mercury News said the report will ‘strongly influence discussions among state regulators about how to restructure electric rates.’ A flurry of responses ensued in various web channels and publications, claiming to biased interpretations and analysis of the data gathered.

Securitization, on-bill repayment and subsidies from utilities customers are all forms of financing distributed solar energy production. These new financing approaches could really help solar energy to scale.

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SAN MATEO, Calif., Nov. 4, 2013 (GLOBE NEWSWIRE) — SolarCity(R) (Nasdaq:SCTY) today announced that its wholly-owned subsidiary, SolarCity LMC Series I, LLC, intends, subject to market and other conditions, to offer in a private placement $54,425,000 aggregate principal amount of Solar Asset Backed Notes, Series 2013-1 with a scheduled maturity date of December 2026. The offering will be made only to persons who are both (i) qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, as amended, and (ii) qualified purchasers as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, for purposes of Section 3(c)(7) of such Act.

These notes will be secured by a pool of photovoltaic systems and related leases and power purchase agreements and ancillary rights and agreements that will be owned by SolarCity LMC Series I, LLC. These notes will represent obligations solely of SolarCity LMC Series I, LLC, and will not be insured or guaranteed by SolarCity Corporation or any other affiliate thereof, or by any other person or entity.

http://online.wsj.com/article/PR-CO-2013 1104-902447.html?dsk=y

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