New US financing alternative to tax incentive could increase installations by 75%

Jul 9, 2012 - Nilima Choudhury - pv-tech.org

A predictable source of liquidity as the industry continues to grow is being offered to consumers in the US.

The US Senate’s recent vote to not extend the Department of Treasury's solar energy tax incentive has resulted in a creative alternative by underwriters from financial institutions like Bank of America to Credit Suisse and Citigroup. This option would convert “sunlight into cash to pay bond investors,” reports Bloomberg. The SEIA predicts solar installations could increase by 75%, exceeding the 3,200MW goal for 2012. The only negative could be that developers may have to offer higher interest rates than more established asset-backed bonds in order to attract investors.

Previously, bankers have used bonds supported by revenue from loans for cars and houses. However, this type of collateral for bonds is what induced the 2008 global economic crisis. Credit Suisse is seeking to develop solar-backed securities, which will offer “a predictable source of liquidity as the industry continues to grow,” said Russell Burns, managing director of asset finance, at Credit Suisse Securities USA.

Tanguy Serra, president of Vivint’s solar unit, believes securitization, which Citigroup is in the process of developing, is less risky than other bonds. “Your home’s electricity is an absolute necessity that comes ahead of everything else. Even if you’re giving up your car, you’re still paying your power bill,” Serra said in an email to Bloomberg. “Investing in solar securities is one of the least risky investments you can make.”

Securitization will “open up substantial amounts of liquidity and credit capacity to an industry that doesn’t have it today,” said Bill Heskett, Merrill Lynch's managing director of asset-backed securities. Bloomberg states that securitization has the potential to become a cheaper source of capital than borrowing from banks.

Companies such as SunRun and SolarCity are booming in the US by financing rooftop solar arrays without charging for installation. Customers lease the systems or buy the electricity, typically for about 15% less than standard power rates under 20-year contracts.

Jonathan Bass, a SolarCity spokesman said to Bloomberg, “Securitization is inevitable in solar. When you can offer solar electricity at a discount to utility rates, you have a cash flow that is more predictable than mortgage or car payments.”

Merrill Lynch director Heskett believes the first deal could take place as early as 2013.

Bloomberg New Energy Finance solar analyst Anthony Kim predicts the first contract could be between Wal-Mart Stores and SolarCity, following proposals to install systems on 60 stores across California. Kim anticipates revenue from these contracts may be packaged into securities worth about US$117 million.
According to Trevor d’Olier- Lees, a director of the infrastructure and renewables group at S&P, believes “real conversations are happening.” As a new financing option, the risks are as yet unknown, making agreements short. D’Olier-Lees advised five year contracts as an appropriate time limit.