Financing more solar energy

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:

The cost-benefit of college sports

A Moody’s report published on Thursday looks at the risk that expensive athletics programs pose to American universities. The majority of these programs lose money, but it has been arguable that athletic success typically enhances a university’s image. It’s a spending gamble, then, for schools to employ to attract students. Moody’s writes:

Universities pursue high-profile sports programs for the opportunity to increase brand recognition, student demand, and donor support. However, that upside comes with financial and reputational risks that require careful oversight. As the commercial success of big-time college sports has grown, so too have the potential benefits and risks to universities.

Here are the risks:

» Budgetary Strain: 90 percent of athletic programs are not self-sustaining, requiring growing subsidies, which divert funding away from other university operations.

The SEC’s role in building better markets

The SEC has just launched a new part of its website dedicated to analyzing the structure of equity markets. Here is how the SEC describes it:

The Securities and Exchange Commission created this website to promote better understanding of our equity markets and equity market structure through the use of data and analytics.

Review current staff market structure research, use interactive data visualization tools to explore a variety of advanced market metrics produced from the Commission’s Market Information Data and Analytics System (MIDAS), download dozens of data sets to perform your own analyses, and further the dialogue through public feedback.

Dodd-Frank appears in muniland

Already the long reach of Dodd-Frank into muniland is having an effect. tells the story (emphasis mine):

The Wall Street investment bank leading Jefferson County’s pitch to exit Chapter 9 municipal bankruptcy could be violating securities law if it serves as an underwriter in the deal, a lawsuit brought by Jefferson County sewer ratepayers says.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, an investment bank may not act as both a financial advisor to a municipal issuer and as an underwriter when that debt goes to market. Serving in both roles could create a conflict of interest for the bank, and the practice was outlawed in 2011.

Investing in America’s largest transit system

I often forget how exciting capital investment can be. Most of us in muniland think more about bond structures, credit ratings and yields than about the actual projects being built. A short report about the MTA from Morningstar Municipal caught my attention:

The MTA has released its long-term capital needs assessment for fiscal years 2015-2034. This 20-year plan serves as a planning guide for the authority’s development of its five-year capital plan.

As Washington lurches from debt crisis to fiscal squeeze, it’s easy to see how dysfunctional government can be. Seeing MTA, the public entity responsible for the subway system, bridges and tunnels, 4,600 buses, the Long Island Railroad and Metro North, plan ahead 20 years restores my faith. After reading how much the MTA intends to spend, $106 billion, you may get excited about how New York City’s transit infrastructure will be renewed and expanded:

Puerto Rico tax revenues must pick up pace

Puerto Rico announced first quarter general fund revenues for fiscal year 2013/14. As you can see, revenues increased $71 million year over year. But the Puerto Rico budget projected that corporation taxes would increase $775 million for the full year. They need to rapidly increase.

If general fund revenues continue on this pace, they will annualize at around $7.3 billion for the year. Puerto Rico will need a massive surge in the coming quarters to meet the full year budget estimate of $9.7 billion in general fund revenues (page 14).

Infant Moscow muni bond market resembles U.S.

For those of us in muniland used to massively oversubscribed municipal bond offerings, this report from the Moscow Times came as a shock:

In its first municipal bond issue in recent years, Moscow managed to sell only 35 percent of the securities on offer, raising 6.85 billion rubles ($212 million).

The city floated three-year bonds worth 20 billion rubles on Wednesday with a yield of 7.12 percent, said Alexander Kovalenko, deputy head of the city’s finance department.

The story behind state business incentives

Louise Story of the New York Times made an epic journalism effort late last year when she documented the level of state business incentives made to corporate entities. The team arrived at the massive number of $80 billion per year of state and local inducements that go to private firms. From their reporting:

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

State tax collections totaled $794 billion in 2012. So the $80 billion figure would equal about 10 percent of state tax collections. Does spending 10 percent of state revenues spur economic activity? If it does, it could be a bargain. From the Times again:

Puerto Rico’s moral hazard

Puerto Rico’s short term funding needs are sending out warning bells. The Padilla Administration has been pushing the Commonwealth Legislative Assembly to agree to an increase in the Sales Use Tax to 3.5 percent from 2.75 percent. With this diverted revenue, the government could issue a third series of Cofina bonds for approximately $2 billion. This third tranche would be subordinate to the first two series of Cofina bonds, but have higher ratings than PR general obligations bonds and other public authority debt. The additional Cofina debt may be needed for short-term borrowing done through private placements.

El Neuvodia reports on the action in the Legislative Assembly (translated from Spanish):

Although they stressed there is ‘no rush’ to go to the markets, the principal officers of the prosecution team of Alejandro García Padilla administration today defended the move in a joint public hearing of Finance committees in the House and Senate.

The ‘unintended consequences’ of flood insurance reform

Hurricanes Katrina and Sandy left about $220 billion in total property damages in their wake. Katrina caused approximately $16 billion in flood damages and required the flood insurance program overseer, FEMA, to borrow from the U.S. Treasury to cover insured losses. Losses from Sandy could push FEMA borrowing from the U.S. Treasury to $28 billion when all claims are paid.

Congress acted in July, 2012 to restore the program to solvency with the passage of the Biggert-Waters Act. Now, as the new flood insurance premiums take effect, an outcry against FEMA and Congress has grown in force.

The new rates are tightly targeted. According to data from FEMA, approximately 250,000 households out of over 5 million households in the program will see substantial premium increases. Insurance Journal drills down more deeply:

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