Financing Solar Projects

Financing activity in solar is showing no sign of slowing down.

It seems every week new YieldCos are being formed, more banks are establishing funds for loan products and entirely new investment platforms are created.

Open Energy Group, a startup peer-to-peer investment firm formed by a group of Wall Street brokers and marketing experts, is the latest example of the latter.

Earlier this week, Open Energy came out of stealth and announced its intentions to directly connect high net worth investors to commercial-industrial solar project developers. It announced the closure of its first fundraise, a $517,500 loan from twenty-two investors that was issued to a 1-megawatt solar farm in Georgia. Open Energy said it offers investors a 7.5 percent annual return.

In the spirit of consumer peer-to-peer lending, the firm is bypassing traditional banks and creating its own intermediary service to get investor dollars directly into solar projects. The goal is to lend $50 million to projects over the next two years -- first through refinancing and then expanding through construction loans.

"It’s all about low-cost acquisition," said Graham Smith, the founder of Open Energy. "We are going to be able to deliver loans cheaper, which will be able to feed the growth of installations."

Banks are mostly interested in lending more than $10 million to commercial projects, said Smith. Open Energy is targeting loans to projects in the $500,000 to $5 million range.

So how is Open Energy different from Mosaic, a lending pioneer that established a similar platform to enable investors to directly invest in commercial and industrial solar projects? Smith was adamant about differentiating the two firms.

"Open Energy and Mosaic could sound similar; after all, we're both platforms that [channel] capital into debt financing for solar projects," he said. "However, on closer examination, both the vision and the execution of that strategy is where clear differences lie."

The biggest difference might be the type of investors Open Energy is targeting. The firm only accepts accredited investors and high net worth individuals, setting a minimum investment at $1,000 with no fixed upper limit. Mosaic's C&I platform is open to nearly everyone and supports investments as low as $25.

Open Energy will also offer different types of loans to C&I solar projects, including senior secured term loans, unsecured mezzanine loans, and eventually, construction loans. Mosaic has focused on senior secured loans, and is now expanding into the residential market by providing loans directly to homeowners installing solar. 

There are distinct differences in the types of products and market segments each lending platform is going after. But they are largely pursuing the same goals: making online lending easy and harnessing the power of individual investors.

Open Energy also wants to do the same thing for project developers looking for a loan, creating a "frictionless approach" to getting them financing.

"The next phase will be to create a tool for the borrower that's like applying for a mortgage online. Put in the relevant information and get a swift response -- that type of product is what's exciting about this market," said Smith.

Last October, Congress passed the JOBS Act, which allowed firms like Open Energy and Mosaic to make public solicitations for crowdfunding and peer-to-peer lending. That dramatically expanded the marketing potential for such offerings and made it easier for finance entrepreneurs to promote new models.

"That allows companies to openly go to market. We can now go out and advertise, and that’s our next step," said Smith.

Photo Credit: Financing Renewables Projects/shutterstock

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