Solar Energy Investing

There’s been a lot of good news for solar this year. In the first quarter of 2013, the U.S. installed 723 MW of solar energy, accounting for over 48% of all new electric capacity in the country. And this week we just heard that the U.S. passed the 10 GW mark for installed solar PV capacity. Yet solar remains a very small percentage of U.S. power generation at around 0.1%. So how do we move the industry forward and expand?

That question dominated discussions at Intersolar North America this past week. As you might expect, there’s more than one answer. An important one lies in the area of financing, a big hurdle for many projects. A daylong symposium on the solar asset class attested to the topic’s significance.

The day’s discussion was framed by representatives from SolarTech, a SunShot-powered organization working to accelerate U.S. PV market growth. Financiers, consultants, lawyers, and more participated in a look at this burgeoning area.

Most agreed that state and federal policies have worked to promote market growth -- to a point. Many creative financing options are available: leases, REITs, MLPs, and PACE programs, to name a few. But most of the $100 trillion of capital in worldwide markets is still not available to fund renewable energy projects, because we lack liquid tradable products. Many financing models haven’t yet been used for solar.

Access to public capital for solar projects could lower levelized costs of energy significantly, also reducing transaction costs and time.

How do we enable this access? The focus of the day was on securitizing solar. A number of players are working to do this, a major one being the National Renewable Energy Lab (NREL). Their Open Solar Performance and Reliability Clearinghouse (oSPARC), also SunShot-powered, aims to build an open-source database of solar projects and to standardize documents and other project elements -- thus enabling new investors to understand the risks involved in the solar asset class. Solar is a new, untested asset class, it hasn’t been through an entire life cycle, and it’s coming on the heels of a serious recession. So it’s facing more than the usual skepticism and scrutiny.

Throughout the day, the importance of these efforts was highlighted. The speakers painted a picture of an industry fraught with issues like a lack of standards and unpredictable systems. That unpredictability has been on people’s radar thanks to recent news stories, highlighting the need for the oSPARC database, which will provide performance data.

Another data point is delinquencies, and there the data can be powerful -- because delinquencies on solar projects are so rare. In the rare cases that a customer defaults on a solar lease, the lease can generally be transferred to the new homeowner (people are more likely to default first on their mortgage, hence the new homeowner). The challenge here is that it will take time to collect data for the typical 20-year residential solar lease cycle.

Standards are also key to building confidence in solar as an asset class. Another NREL initiative, Solar Access to Public Capital (SAPC), has a goal of standardizing documents and best practices.

But as more than one speaker pointed out, securitization is not a panacea, and the desire to securitize solar shouldn’t be driving the need for data and standards. Standards are important in their own right, and are necessary for the industry to scale. In addition to paving the way for securitization, they confer benefits like increasing the speed of transactions.

In the end, financing will come into place only if everything else is there to support it. That means stable, consistent policies that promote investing. It means tools to track data and assess risk. And it means standards that make sense to everyone, including customers.

One thing is clear: The financial world is getting interested in solar. And now it’s not just the community banks, which have been more involved when it comes to smaller projects. As the amounts of money increase, the financial industry as a whole is getting involved. If the push for securitization also results in better data collection and increased standards, that can only be good for the industry.