Game-changing Solar Finance Model for Mid-size Projects

by Guest Contributor Camilo Patrignani, CEO of Greenwood Energy

Mid-size solar farms hit the ‘sweet spot’ with investor groups willing to invest in renewable energy. 2.9MW ground-mounted Soltage-Greenwood Walpole, MA solar array image via Greenwood Energy
Mid-size solar farms hit the ‘sweet spot’ with investor groups willing to invest in renewable energy. 2.9MW ground-mounted Soltage-Greenwood Walpole, MA solar array. Image via Greenwood Energy

These days, a $40 million dollar equity financing deal might not seem groundbreaking in America’s power markets. But for the keen analyst of distributed solar energy, that same investment may just herald a shift toward the future of project financing.

Count our team at Soltage-Greenwood among the latter, with an outlook brightened by the recent announcement John Hancock Life Insurance would lead a $40 million initial round of equity funding destined to finance multiple project pools across America, starting with 13 megawatts (MW) at six locations across four northeastern state.

Just another solar investment, right? Not really. While the boom in distributed solar energy generation is one of the hottest topics in today’s energy economy, most large institutional investors haven’t traditionally been interested in medium-sized solar installations, and as such, are just now getting into the game.

This trend is especially important considering clean energy investment fell for the second year in a row in 2013, down 11 percent after a similar 10 percent decline in 2012, according to Bloomberg New Energy Finance. While investor appetites in solar are growing, good investment opportunities can often be hard to find, meaning dollars are scarcer and thus more important for solar developers.

Big investors typically want to invest in big projects and standardized contracts, creating difficulty financing distributed solar. That problem hasn’t played out in the rooftop residential market, where developers like SolarCity have installed record amounts of solar panels because all contracts are standard and investors only need to review a diversified pool of credit scores. The same pattern is true for the large utility-scale market where companies like SunEdison have been able to construct massive solar farms and investors only need to review one set of contracts.

But that problem has vexed mid-sized developers who can often fund project-planning phases on their own but rely on securing long-term investors after projects are fully permitted and construction can begin. Individual arrays aren’t large enough to attract large investors, but project pools can involve many different contracts. Without investment to cover the long period of exposure between when the first rack goes in to when the system switches on, potential projects pile up but result in far too few interconnections to fulfill America’s solar energy promise.

Our approach to this problem may seem simple, but it’s been a success: Package together multiple solar projects in states with favorable renewable polices to create the scale and standardization required for big investors to take notice.

Think back to that 13MW project pool I mentioned earlier – it was sizable enough to attract a major institutional investor and secure sufficient equity financing that not only funds our initial project pool, but empowers Soltage-Greenwood to look ahead to an aggressive series of additional (and larger) project pools in 2014.

Now combine that equity financing with our business model of partnering with leading solar developers through the Soltage-Greenwood joint venture, and solar engineering, procurement, and construction contractors through the Greenwood Biosar joint venture to handle every aspect of projects from engineering to procurement and construction through maintenance, and the reason for our optimism comes into focus.

By vertically integrating the solar development business, mid-sized developers like Soltage-Greenwood can reach the scale needed to attract institutional investors, ensuring project financing through construction and interconnection, allowing power-purchase agreements to be put in place, and providing a positive return on investment that encourages additional investment.

Add it all up, and we believe we are well positioned to quickly and efficiently capitalize on the growing demand for distributed clean energy well into the future.

Greenwood Energy is the North American clean energy division of the Libra Group, a privately owned international business group comprising 30 subsidiaries operating across five continents.

Greenwood creates clean energy options by building and investing in new solar energy projects, manufacturing sustainable fuel to replace coal, and developing combined heat and power fuel cell systems.

This article, Just Another Solar Deal, Or The Future Of Mid-Size Project Financing?, is syndicated from Clean Technica and is posted here with permission.

Duke Energy Requests 300 MW Of New Solar Power

by Nathan.

Duke Energy, the biggest electric holding power company in America, just issued a new Request for Proposals for 300 MW worth of solar PV.

Renewable Energy. Duke Energy calls for 300MW of solar.
Renewable Energy. Duke Energy calls for 300MW of solar.

If approved, “bidders can offer power, renewables certificates or whole projects for Duke Energy to take ownership.” Duke Energy affiliates aren’t eligible.

Issued on February 14th, the request is for projects to be located in the company’s “Carolinas and Progress territories” — this includes North Carolina, South Carolina, and Florida. Another stipulation is that all projects, in order to be accepted, will need to be operational by the year 2015, and need to be over 5 MW in capacity.

PV-Tech provides more:

North Carolina’s Renewable Energy, and Energy Efficiency Portfolio Standards (REPS) and Duke Energy’s renewable targets will be assisted by the request. Any projects that can be connected to the Carolinas’ system are eligible, so proposals from South Carolina will also be considered.

The new proposals will nearly double current solar capacity for Duke Energy, according to Rob Caldwell, the vice president of renewable generation development at Duke Energy. “It gives developers the opportunity to pursue projects for the long term, or to negotiate for Duke Energy to acquire ownership of the new facilities once they are operational.”

“For bidders who wish for Duke Energy to assume ownership, it will allow us to better locate and integrate the new capacity into our energy mix,” Caldwell continued. “We are in the best position to manage the unique characteristics of intermittent solar generation into our existing system to assure cost-effective, reliable, dependable electricity for our customers.”

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This article, Duke Energy Issues Request For 300 MW Of New Solar PV Proposals, is syndicated from Clean Technica and is posted here with permission.

About the Author

Renewable Energy. Nathan.Nathan For the fate of the sons of men and the fate of beasts is the same; as one dies, so dies the other. They all have the same breath, and man has no advantage over the beasts; for all is vanity. – Ecclesiastes 3:19

Introduction to the ‘Business side’ of Solar: Securitization

by Guest Contributor Travis Lowder.

Originally published on NREL.

The U.S. solar industry is an $11.5 billion market with over 360,000 systems in place [1]. Since 2008, solar capacity additions have exhibited a compound annual growth rate of over 50%, with strong gains anticipated in the coming years.

As the industry grows, it is exploring alternative financing options outside of its traditional funding sources (namely debt, tax equity, and cash equity). Securitization—the process of structuring an illiquid asset into a liquid and tradable one (i.e., a security)—represents an emerging opportunity for the distributed solar market in particular. Access to the capital markets through security issuance can assist the solar market in achieving greater liquidity among investors and an advantageous cost of capital relative to traditional funding sources (namely debt, tax equity, and sponsor equity). Liquidity and lower financing rates have both proven somewhat elusive given solar’s current reliance on project financing and tax equity structures.

A new report from the National Renewable Energy Laboratory, The Potential of Securitization in Solar PV Finance, explores this capital market finance option for PV assets. The report provides a general overview of the securitization process (see Figure 1), the actors involved, the benefits (and risks), and the rationale for pursuing this kind of funding strategy.

The report also offers a high-level analysis of the volumes of solar deployment that could be supported given a single securities offering [2]. It posits that a single $100 million securitization transaction (not accounting for fees, overcollateralization, and other structuring/transactional costs) could potentially support 72 MW of residential solar assets, or 100 MW of commercial, or 133 MW of large commercial and industrial (C&I) projects [2]. See Table 1.

Solar projects will likely be pooled into different types of securities based on several factors, including: project size; the type of cash flows securitized; and the entity that will issue the securities. The report broadly identifies three classes of securities that, upon preliminary analysis, would be applicable to the solar industry: asset-backed securities (ABS), collateralized loan obligations (CLOs), and project bonds. ABS instruments are typically used in the securitization of cash flows in the consumer finance sector (e.g., credit cards, auto loans, and student loans); CLOs are securitizations of loan payments and are commonly used to alleviate banks’ balance sheets; and project bonds are debt instruments that have been issued against project-level cash flows [2].

While there are several nuances that would determine which instrument would be applicable in a given solar project or portfolio of projects (such as a tax equity fund for residential assets), the report offers the following general classification:

  • ABS securitizations will be widely applicable to the residential solar sector, as the metrics for evaluating these instruments (e.g., FICO scores) are similar to those for evaluating the credit quality of residential solar assets.
  • CLO securitizations will be more applicable to the commercial sector. This is because the cash-flow pools will require fewer underlying systems to reach the same dollar volume as a residential. Fewer systems mean fewer offtakers, which in turn mean less portfolio diversity. And, without a diversity of offtakers behind the cash flows in the pool, there is greater focus on the creditworthiness of each offtaker. Typically, CLOs are the appropriate securitization structure to manage this kind of corporate risk.
  • Project bonds are debt securities issued against project-level cash flows and have been used to finance utility-scale projects. A bond obligation can look similar to a non-recourse loan on a balance sheet, though it has the distinct advantage of tapping into funding sources outside of the commercial lending market and at larger sums. In the last two years, project bonds have been issued to finance both the construction (MidAmerican’s Topaz and Solar Star projects) and takeout (NextEra’s St. Clair) of large-scale solar projects [2].

Looking Forward

Institutional investors, such as pension and insurance funds, will typically allocate about 5% of their assets for “alternative investments,” such as a renewable energy project investment. Courting these entities will therefore require solar to transcend the “alternative” category and offer itself as a bankable, standardized, and transparent investment product. Institutional investors allocate as much as 40% of their assets to these types of investments, which, by some estimates, could amount to some $37 trillion at the outset of 2014 [3,4].

Even if the PV industry posts half of the annual growth rate that it has from 2008 – 2013, this would amount to about 20 GW of capacity additions by the time the 30% investment tax credit expires in 2017. At an average of $3/W across market segments, 20 GW of solar PV represents $60 billion worth of assets, a third to a half of which would likely have securitizable cash streams flowing through them. A $20 –30 billion base of long-dated assets, made liquid through securitization and investment grade through continued understanding of the credit risk, would be a strong draw for many of the investors in that conventional category.

References

[1] Renewable Energy Finance, Solar Securitization: A Status Report (Fact Sheet). (2013). Golden, CO: National Renewable Energy Laboratory. Accessed January 31, 2014: http://www.nrel.gov/docs/fy14osti/60553.pdf.

[2] Lowder, T.; Mendelsohn, M. (2013). The Potential of Securitization in Solar PV Finance. Golden, CO: National Renewable Energy Laboratory. Accessed January 23, 2014: http://www.nrel.gov/docs/fy14osti/60230.pdf.

[3] Turner, G.; et al. (2013). Profiling the Risks in Solar and Wind: A Case for New Risk Management Approaches in the Renewable Energy Sector. Swiss Re and Bloomberg New Energy Finance. Accessed January 23, 2014: http://media.swissre.com/documents/Profiling-the-risks-in-solar-and-windv2.pdf.

[4] TheCityUK. (September 2013). Fund Management 2013. TheCityUK. Accessed January 23, 2014: http://www.thecityuk.com/research/our-work/reports-list/fund-management-2013/.

This article, Solar Securitization Intro, is syndicated from Clean Technica and is posted here with permission.

Fascinating Infographic: What Solar Investors Really Want

by Zachary Shahan.

Sara Rafalson of Sol Systems recently sent along an infographic on What Solar Investors Want that her company put together. This isn’t just another flimsy infographic, though. The data came from “a year of our Project Finance Journals, which we distribute on the 15th of every month to approximately 2700 industry professionals” Sara noted. She also commented on why there was even a need for such an infographic:

The shortage of project finance is a limitation to the non-residential, commercial and industrial (C&I) sector of the solar market. Especially compared with other sectors of the market, C&I distributed generation solar is plagued with high transaction costs and a lack of standardization. Though there is no shortage of solar investors trying to break into the promising solar asset class, there is a true shortage of financeable, quality project pipeline. This lack of financeable deal flow is stifling the market and limiting the growth potential of the U.S. solar industry.

So, with that background out of the way, let’s start offering investors more financeable solar projects! Here’s how:

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This article, What Solar Investors Want (Infographic), is syndicated from Clean Technica and is posted here with permission.

About the Author

 

Renewable Energy. Zachary Shahan.Zachary Shahan is the director of CleanTechnica, the most popular cleantech-focused website in the world, and Planetsave, a world-leading green and science news site. He has been covering green news of various sorts since 2008, and he has been especially focused on solar energy, electric vehicles, and wind energy for the past four years or so. Aside from his work on CleanTechnica and Planetsave, he’s the Network Manager for their parent organization – Important Media – and he’s the Owner/Founder of Solar Love, EV Obsession, and Bikocity. To connect with Zach on some of your favorite social networks, go to ZacharyShahan.com and click on the relevant buttons.

Wall Street Suddenly Hot On Solar Stocks

by Tina Casey.

Over the weekend, the New York Times noted that the solar power “craze” is partly responsible for Wall Street’s recent good times. The Times used the example of solar giant SolarCity, which has seen a sevenfold increase in its share price to $59.27 since it went public, but this could just be starters for the US solar industry. An international research team based at North Carolina State University has come up with a simple way to increase the efficiency of organic solar cells by more than 30 percent, leading to lower costs and a much bigger market.

That’s great news for companies like SolarCity. The company – another brainchild of Tesla creator Elon Musk – packages and installs solar systems, so it’s not subject to the kind of downward global pricing pressures that doomed US manufacturers like Solyndra.

In fact, down works good for SolarCity’s business model. Solar cells account for about half the cost of a fully installed and connected solar system, so a major drop in the cost of solar cells will have a significant impact on overall costs. That gives SolarCity and other solar packagers another opportunity to offer their systems at more competitive prices, and nudge conventional fuels out of the market.

Solar cell efficiency breakthrough courtesy of NCSU.

Solar cell efficiency breakthrough courtesy of NCSU.

A New Solar Cell Efficiency Breakthrough

With that in mind, let’s take a look at that NCSU solar cell efficiency breakthrough, which was just published in the journal Advanced Materials.

The research applies to organic solar cells, which refers to a relatively new class of solar cells based on polymers (loosely speaking, plastic). Organic solar cells are less efficient than silicon, which is still the gold standard, but they make up for it with the potential for a broader range of applications and a low cost manufacturing process.

The key to the breakthrough is the creation of a new low cost polymer by NCSU’s partner in the project, the Chinese Academy of Sciences. Called PBT-OP, the new polymer is made from two readily available monomers and a third monomer that can be synthesized with relative ease (monomers are identical molecules that can be bonded together into long chains as polymers).

The new polymer skips over a key hurdle for lowering the cost of organic solar cells, which is the use of fluorine. Typically, in organic solar cells a fluorine atom is needed in the polymer’s “molecular backbone” in order to increase efficiency, but that is a complicated processes and it introduces significant manufacturing costs.

PBT-OP has the fluorine advantage without the fluorine. To get a handle on that, all you need to know is that organic solar cells consist of an electron acceptor material and an electron donor material, each with its own molecular orbit.

The trick is to find the ideal difference between the highest occupied molecular orbit of the acceptor and lowest unoccupied molecular orbit of the polymer.

Once you get that nailed down, what you’ve done is to create a kind of super-efficient electrical highway, in which excitons (the energy particles created when a solar cell absorbs light) travel as quickly as possible within the interface of the donor and acceptor domains. That means you minimize the loss of energy that occurs in a conventional organic solar cell.

NCSU physicist Harald Ade breaks it down:

The possible drawback in changing the molecular structure of these materials is that you may enhance one aspect of the solar cell but inadvertently create unintended consequences in devices that defeat the initial intent. In this case, we have found a chemically easy way to change the electronic structure and enhance device efficiency by capturing a lager fraction of the light’s energy, without changing the material’s ability to absorb, create and transport energy.

Thank you, Harald. Now let’s also thank the U.S. Department of Energy, which funded the research project in partnership with the Chinese Ministry of Science and Technology.

SolarCity And Tesla

Now let’s get back to that SolarCity/Tesla connection. Tesla Motors co-founder and CEO Elon Musk is best known for his innovation in the electric vehicle field, which seamlessly marries EV charging stations with onboard technology in the form of Tesla Motors’ Supercharger network, and he is also the Chairman of SolarCity.

Tesla has been introducing Supercharger stations powered at least partly by on site solar installations in the form of canopies, so it’s no surprise that SolarCity is providing the installations.

SolarCity is also the force behind solar-powered home EV charging stations and SolarStrong, which involves $1 billion worth of rooftop solar panels for military housing. Los Angeles Air Force Base and Fort Bliss are two examples, with Los Angeles being particularly interesting because the base has also been introducing electric vehicles.

Given SolarCity’s track record with thin-film solar cells and the solar/mobility connection with Tesla Motors we’re thinking that it won’t be long before both companies cook up new applications for organic solar cells as the cost of the technology continues to drop.

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This article, Wall Street Suddenly Loves Solar, Just In Time For New Solar Cell Efficiency Breakthrough, is syndicated from Clean Technica and is posted here with permission.

About the Author

Tina CaseyTina Casey specializes in military and corporate sustainability, advanced technology, emerging materials, biofuels, and water and wastewater issues. Tina’s articles are reposted frequently on Reuters, Scientific American, and many other sites. You can also follow her on Twitter @TinaMCasey and Google+.

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