US wind, solar, and renewable energy businesses as a whole grew substantially in 2012, for the first time creating more generating capacity than that produced from conventional energy sources. All this despite facing a variety of headwinds – including political, fossil fuel and utility industry opposition; cut-throat competition; and a slow, gradual economic recovery.
Large investors are increasingly involved in developing US wind, solar and renewable energy projects. Tax equity financing — in the form of investment and production tax credits — has been the primary market-based mechanism adopted at the federal government level, and that has severely restricted broader-based participation among US investors.
A number of new possibilities loom, however, including solar energy versions of popular real estate investment trusts (REITs) and renewable energy master limited partnerships (MLPs). Enabling the securitization of solar photovoltaic (PV) assets and cash flows would facilitate formation of these and other promising investment alternatives.
Developing standardized investment documentation is pivotal to facilitating market access to those who manage large pools of capital – mutual fund managers, insurance and pension fund managers, investment banks, private equity funds and the like. That, in turn, should lower the cost of capital – a major cost component and hurdle for solar and renewable energy project developers.
On March 19, the US Department of Energy’s National Renewable Energy Laboratory announced it had “recently convened the Solar Access to Public Capital (SAPC) working group with a mission to enable securitization of solar PV assets and associated cash flows in the marketplace.”
Lowering Capital Costs and Making Solar More Affordable
SAPC is a cross-sectoral group made up of more than 60 members representing leading organizations in solar energy deployment, finance, legal issues, and analysis. Its primary focus is on standardization of solar power purchase agreements, leases, and all the other documents pertaining to residential and commercial solar PV deployment, NREL explains in a press release. SAPC is also focusing on development of “robust datasets to access performance and credit-default risk,” two other crucial aspects to facilitating more broad-based private sector investment.
As NREL senior analyst Michael Mendelsohn highlighted,
“It’s exciting to see the industry come together to build the foundation to a securitized market. Access to low-cost public capital offers the potential to significantly lower the cost of solar energy.”
Facilitating securitization of solar PV assets and cash flows will facilitate creation of a variety of investment vehicles, including solar energy REITs, asset-backed securities, and MLPs, as well as other forms of debt securities.
A separate, though complementary private sector effort is also under way. Led by Distributed Sun and DuPont Photovoltaic Solutions, the truSolar consortium of 16 leading solar industry participants last month announced the establishment of a working group that aims to address “a broad array of project risks through the development of uniform standards that will facilitate lower transaction and capital costs, and improve project finance liquidity within the commercial and industrial solar segment.”
SAPC members MT, SolarTech, and NREL are co-sponsoring a webinar, “Can Finance Be Easier?” on March 22. Starting off with an overview of SAPC’s efforts by NREL’s Mendelsohn, a panel of solar industry leaders will then engage in a round-table discussion of solar financing. Those interested in participating can register online at here.
NREL is also fielding questions about SAPC, which can be forwarded to SAPCinfo@nrel.gov.
I've been reporting and writing on a wide range of topics at the nexus of economics, technology, ecology/environment and society for some five years now. Whether in Asia-Pacific, Europe, the Americas, Africa or the Middle East, issues related to these broad topical areas pose tremendous opportunities, as well as challenges, and define the quality of our lives, as well as our relationship to the natural environment.