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.

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.

Indian Govt replacing 26 Mn Diesel Water Pumps with Solar Pumps

by Guest Contributor Jeff Spross.

Renewable Energy pumps water. The Indian government is aiming to swap out 26 million fossil-fuel-powered groundwater pumps for solar-powered ones.
Renewable Energy pumps water. The Indian government is aiming to swap out 26 million fossil-fuel-powered groundwater pumps for solar-powered ones. Image by Shutterstock

Originally published on ThinkProgress.

The pumps are used by farmers throughout the country to pull in water for irrigation, and currently rely on diesel generators or India’s fossil-fuel-reliant electrical grid for power.

Pashupathy Gopalan, the regional head of SunEdison, told Bloomberg that 8 million diesel pumps already in use could be replaced right now. And India’s Ministry of New and Renewable Energy estimates another 700,000 diesel pumps that could be replaced are bought in India every year.

“The potential is huge,” said Tarun Kapoor, the joint secretary at the ministry. “Irrigation pumps may be the single largest application for solar in the country.”

The program works by subsidizing the swap, and operates in different capacities in India’s various states, sometimes subsidizing the solar pumps up to 86 percent. Thanks to that aid, and the dramatic collapse in prices for solar power, the pumps pay themselves off in one to four years, according to Ajay Goel, the chief executive officer of Tata Power Solar Systems Ltd., a panel maker and contractor. And Stephan Grinzinger, the head of sales for a German solar water pump maker, told Bloomberg the economics will only get better: diesel prices will rise and spike during farming season, and economies of scale will help the swap program.

Two-thirds of India’s electricity is generated by coal, with natural gas and hydroelectric making up most of the rest. But the monsoon season is growing more erratic — likely due to climate change — making power from the hydroelectric dams less reliable as well. Coal is growing in economic cost for India, so power plants often sit idle, and the coal that is easy to reach would require displacing major population centers.

The national grid that relies on those fuels has seen few updates since it was constructed in they 1960s. It’s also under growing stress from India’s rising middle class, which is adopting air conditioning and running water in massive numbers — all in a country prone to heat waves, again thanks in part to climate change. As backup, many Indian residents and businesses rely on diesel generators, which leaves them vulnerable to the fuel market and contributes to fossil fuel emissions.

Even when the grid is working, around 300 million of India’s 1.2 billion inhabitants don’t have access to it. When it’s not, rolling blackouts are common. Many farmers are able to draw only four hours of power a day from the grid, and that often at night. Heat waves in 2013 were accompanied by widespread blackouts, and a two-day grid failure in 2012 left over 600 million Indians without power.

Ironically, thanks to the kind of distributed and sustainable generation the swap program represents, many of India’s rural poor actually faired much better during the blackout than the grid-dependent middle-class. It’s one of the strengths of solar in particular, even before climate change is considered: a more decentralized power system, based around “microgrids” and individual power generation, rather than a centralized system reliant on the good function of large, singular power providers. In India in particular, sunlight is most plentiful at the times when demand tends to peak. That leaves the power system more adaptable, less prone to central failures, and thus more hospitable to those still struggling to overcome poverty in particular.

Beyond India’s pump swap program, other efforts in south Asia and northern Africa are already underway to bypass grid expansion entirely, and bring solar power and microgrids directly to poor people.

Image Credit: solar water pump via Shutterstock

This article, Indian Government Aims For 26 Million Solar Water Pumps, is syndicated from Clean Technica and is posted here with permission.

Local Renewable Energy or Utility Co. Who’s Your Energy Daddy?

by John Farrell.

Photo Credit: Michael Kappel
Photo by Michael Kappel

For now it remains large, investor-owned utilities, and ostensibly locally-focused rural cooperatives and municipal utilities. But the energy landscape of today gives me uncomfortable reminders of the Athenian tragedy by Sophocles – the Oedipus tale.

John Farrell, ILSR’s Director of Democratic Energy, gave this panel presentation at the 23rd annual conference of the Society for Environmental Journalists in Chattanooga, TN, on Oct. 4, 2013.

For those who don’t recall their college or high school English class, that’s the tale of the man who grows up to murder his father the king and marry his mother.  And in this 21st century version, the utilities are the king and Little Oedipus is represented by rooftop solar panels, wind turbines, and other ways that utility customers can produce their own energy. I won’t speculate who is the mother.

Earlier this year, the Edison Electric Institute (the daddy’s club of the investor-owned utilities) released a report suggesting that Oedipus has grown up and his daddy may not be prepared for the climax of this play. It’s summarized in two headlines from the clean energy press this summer. In Grist: “solar panels could destroy U.S. utilities” and in GreenTechMedia, “adapt or die.”

The problem is that customer power generation from local renewable energy reduces utility sales.*

(I asterisk this statement because there’s a robust debate about whether this distributed renewable energy brings other benefits to the grid not reflected on the balance sheet – for more information, read up on Minnesota’s value of solar process.) But if your utility (or state regulatory regime) has built its business model around growing energy sales, this creates what some are calling a utility death spiral. Falling energy sales force utilities to raise rates, which further enhances the attractiveness of generating your own energy from solar.

It explains why the chair of the Federal Energy Regulatory Commission, Jon Wellinghoff, recently said: “solar is going to overtake everything.”

So Oedipus a growing threat, and the utility daddy is trying desperately to stave off the storybook conclusion.

The problem is that the energy daddies grew up in a very different era.  In the early days of the electric system, you needed big capital to build big power plants and big power lines to bring energy to big cities. We gave them monopolies to facilitate that infrastructure development. And for decades, it worked.

But in the next 10 years, electricity from rooftop solar energy will be competitive – without subsidies – with utility energy prices in almost every state. The overlay of renewable energy standards and incentives for distributed renewable energy illustrates how the public interest, the energy model, and the economics have changed.

The way utilities respond will determine whether this Oedipus tale ends like the play. In Arizona, Wisconsin, and many other states, utilities are trying to gut the basic policies allowing people to generate their own energy. In some places, they are successful.  But a recent story from Georgia should give them pause – a “Green Tea Coalition” of environmentalists and tea party activists successfully lobbied the public utility commission to require the state’s biggest utility, Georgia Power, to launch a large distributed solar program.

Utilities that try to maintain the status quo, to remain the energy daddy, are going to have a hard time. Their customers will fight them for the right to self-generate, especially if it costs less than utility power, and these local energy producers will also be energy voters.

What we need is to have the utility become the facilitator rather than the ruler, the kindly elder sibling rather than an energy daddy. Because even as utility customers look to their own options for electricity generation, they will still need the utility network…

1)  to help them use their rooftop solar to power their electric vehicle.
2)  to finance high-efficiency appliances, efficient lighting, insulation and other strategies to cut their energy use and energy bills.
3)  to use existing on-demand energy sources (like natural gas) and future ones (like batteries) to keep power delivery smooth and high quality as the grid transitions to primarily renewable energy.

This won’t be easy. For one, utilities have a lot of money sunk into power plant and transmission infrastructure that may or may not be useful in this new era. For another, the regulatory system doesn’t necessarily reward this facilitation role rather than energy sales. But there’s no real alternative, because people are not likely to accept, nor should they, giving up this opportunity to have more control over their energy future.

Photo Credit: Michael Kappel

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This article, Who’s Your Energy Daddy?, is syndicated from Clean Technica and is posted here with permission.

About the Author

John Farrell directs the Energy Self-Reliant States and Communities program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.

Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World. John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

California ranks 7th in the world for installed solar

Originally published on Cost of Solar by Zachary Shahan

California Solar Facts

Here are a number of California solar facts for you:

  • Over 1,721 solar companies employ 43,700 people are located across California.
  • 1,045 megawatts of solar power capacity were installed in California in 2012 — more than any other state.
  • Over 3,761 megawatts of solar power capacity are now installed across California — more than any other state.
  • Enough solar power is installed in California to provide electricity for over 800,000 homes.
  • “In 2012, $2.6 billion was invested in California to install solar on homes and businesses. This represents a 31% increase over the previous year, and is expected to grow again this year.”
  • “Average installed residential and commercial photovoltaic system prices in California have fallen by 13% in the last year.”
  • California has more solar power capacity installed than all but 6 countries.

California is a solar giant. Well, it’s a giant in general. It’s the most populous state in the United States, home to 1 out of every 8 Americans.

Also, the state has a larger economy than all but 8 countries (US included). Being quite progressive, it’s a given that California would be a solar energy leader.

Indeed, it’s the #1 state in terms of total solar power capacity. But what solar incentives are available to homeowners or businesses who want to jump into the solar market?

There are quite a few, so I’ll run down these in a rather concise way with links for more information.

California Solar Incentives

California Solar Initiative (CSI) Solar PV Rebates: Nearly used up, the residential solar PV portion of the CSI offers attractive rebates for solar PV projects installed in the state. A sister program is also in place for solar thermal systems and for solar on new homes. Despite the residential solar portion of the CSI being essentially used up, other state incentives combined with the now very low cost of solar power systems has kept residential solar in the state growing fast.

Net metering*: When customers with solar power systems create more electricity than they use, electricity is sent back to the grid and the customers’ utilities then pay retail rates for that electricity. (*The policy details linked above apply for all utilities in the state except LADWP. A different net metering policy is used in the LADWP district.)

Feed-in tariffs: As mandated by a state law, California’s investor-owned utilities and publicly-owned utilities have to develop and offer renewable energy feed-in tariffs for their customers totaling 750 MW of capacity (investor-owned utilities — 493.6 MW; publicly-owned utilities – 256.4 MW). If you’re not familiar with the policy, a feed-in tariff allows an electricity generator (including someone with solar PV panels on their home) a specified rate for the electricity they generate for a specified period of time, often 15 or 20 years.

The rate should be high enough that it provides the owners of renewable energy projects with enough profit to stimulate the targeted amount of renewable energy growth. Notably, if a customer participates in a feed-in tariff program in California, they cannot participate in other state solar incentives. Here are details regarding feed-in tariffs in the LADWP district and in Marin County.

Property Tax Exclusion: As simple as the name implies, certain types of solar systems can be excluded from property taxes through this policy.

Rebates are also offer in numerous cities, counties, and special districts:

Most of those places also offer similar rebates for energy efficiency projects. You can check out the full list of rebates here.

A number of cities, counties, and special districts also offer a handful of other special incentives:

I know — all of that is a lot to navigate. Luckily, good and experienced solar installers in your area should have a firm grasp on what incentives you could and should apply for. Go through our quick and free system to get connected to an recommended solar installer in your area.

There’s no doubt that California will continue to be a solar power leader for years to come. The only question is whether or not you will be a part of that.

Image Credit: SEIA

*CleanTechnica and Cost of Solar are now owned by the same company, and thus have a financial relationship.

This article, California Solar Incentives & Fun Facts, is syndicated from Clean Technica and is posted here with permission.

About the Author

Zachary ShahanZachary 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.