Solar Energy Companies Look to Capital Markets for Long-term Financing

US solar energy industry participants are having to rely increasingly on private sector capital to meet their project and longer term financing needs. The Treasury 1603 grant program for solar photovoltaic (PV) energy expired at year-end 2011, leaving equity issuance and a very limited market for tax equity transactions as the only real “staples” for raising capital.

This is as solar industry players, the DOE, and the Obama administration expected, but it comes sooner, somewhat abruptly, and at a particularly difficult period of time. Industry participants have been preparing for these developments, and there are signs that progress is being made, however.

Utilities and independent power producers with ready access to the US bond market, such as Berkshire Hathaway’s MidAmerican Energy and NRG, are increasingly getting involved in the project development and ownership side of the solar energy industry value chain, a development that may open up opportunities for other industry participants to follow suit. Recent developments indicate that institutional investors may have an appetite for solar energy bonds, as well.

Investment banks managing a bond sale for MidAmerican Energy’s 550-MW Topaz Solar Farm yesterday sold a total $850 million of Topaz bonds, $150 million more than was initially allotted. Priced to yield 5.75%, the bonds have a weighted average life of 15.6 years with a final maturity in September 2039, according to a WSJ article.

Will investors be interested in solar energy bonds?

Issued at nearly 380 basis points (1/100th of a percentage point) over the 10-year US Treasury bond, the Topaz bonds offer investors the opportunity to buy investment-grade bonds at a significantly higher yield. Lead investment bank book managers for the bond issue, Barclays Capital Group and Royal Bank of Scotland, received orders totaling $1.3 billion, nearly double the original amount on offer. Indicative of strong demand, the Topaz bonds’ price rose and yield fell by 12.5 basis points in secondary market trading.

Scheduled for completion in 2015, MidAmerican Energy recently acquired ownership of the 550 MW thin-film Topaz Solar Farm project from First Solar, which will carry on in building and then operating the project.

Set to be one of the largest solar PV farms in the world, the project is located in the northwestern corner of California’s Carrisa Plains. It’s expected to generate enough clean, renewable electricity to power some 160,000 average California homes. Pacific Gas & Electric has agreed to buy Topaz’s output under the terms of a 25-year power purchase agreement (PPA).

The Topaz solar PV project is also generating green jobs — a projected 400 construction jobs, according to First Solar — associated income from direct and indirect employment, induced spending, and supply chains revenues. It will also generate revenue for the county, which are estimated at $417 million, including property and sales tax revenue.

Venture Capital for Solar Junction

Venture capital has been one of the primary means by which solar energy industry start-ups and early, development stage-businesses have raised long-term capital in the US.

CIGS (Copper Indium Gallium Selenide) solar PV cell manufacturer Solar Junction on Feb. 13 announced the closing of a $19.2-million Series D round of financing, which included a further strategic investment and partnership with Cardiff, Wales-based IQE, which manufactures a range of silicon products, from LEDs to silicon PV wafers and optoelectronics. Also participating in the Series D funding were New Enterprise Associates, Advanced Technology Ventures, and Draper Fidher Jurvetson (DFJ).

An emerging manufacturer of III-V multi-junction, concentrating PV (CPV) cells, San Jose-based Solar Junction holds the solar PV world record for conversion efficiency at 43.5%. It intends to use the Series D capital to scale up its manufacturing capacity.

“This is a potentially transformational opportunity. The CPV market has reached an inflection point in terms of cost comparisons with fossil fuels and is promising impressive growth potential,” commented Dr. Drew Nelson, IQE CEO in a press release. “A combination of Solar Junction’s core materials IP and technology, together with our own IP and manufacturing capabilities, provides a compelling route to significantly higher cell efficiency and cost effective, high volume production.”