Connect with us

Hi, what are you looking for?


Clean Power

Could Securitization Democratize Solar Power?

After Wall Street popularized the term “mortgage-backed securities” in its destruction of the economy in 2008, you could be forgiven for thinking “solar securities” are a pyramid scheme. But, in truth, they may hold the key to democratizing the financing and the ownership of distributed renewable energy.

Right now, financing solar typically means looking for a “tax equity” partner who will provide some upfront cash to build a solar array in exchange for helping to use the federal tax incentives for solar. These are business deals, and the tax equity folks may demand a 30% return on their equity (or more). This means a higher price for solar power that has nothing to do with the cost of producing electricity and everything to do with poor policy design.

But what if a solar developer could borrow money at 6% interest instead, and the savings would be so significant that they could even forgo the federal tax incentives and still produce cheaper electricity?

Enter solar securities (hat tip to Jesse Morris at RMI for this idea).

The basic idea is that a solar project (or any distributed renewable energy project) is a highly reliable source of revenue for a long period of time, e.g. 10,000 kilowatt-hours per year for 25 years, worth 15 cents per kWh. If you had a certificate for the value of this electricity (a security) and bundled hundreds of them together, you’d have an investment-quality product backed by a diverse number of solar energy projects, all with high likelihood of paying out.

Millions of institutional investors and even ordinary Americans put their money in mutual funds every year, comprised of stocks and bonds and many other financial instruments. And many are looking for a low-risk, low-reward instrument, like a solar security.  Instead of Goldman Sachs, think TIAA-CREF.

Here’s why it could help the solar market, a lot.

  1. Many renewable energy project owners are unable to use tax incentives (e.g. cities, schools, nonprofits) or limited in their capacity to do so.
  2. The renewable energy market is constrained by the number of tax equity players and the depth of their pockets.
  3. Tax equity is expensive compared to the rates of return for mutual funds or bank debt.

By offering much cheaper financing that is not reliant on tax incentives, solar securities could exponentially increase the available capital for solar financing while simultaneously blowing up the single biggest roadblock to community-based solar energy.

Here’s a chart illustrating the difference in the cost of solar when developed with tax equity financing (40% of project equity with a 30% rate of return) compared to one developed with solar securities financing (60% debt with a 6% rate of return):

Solar security financing can lower the cost of solar by nearly 25% even when giving up the 30% federal tax credit.  This could be an enormous boon for public entities like schools and city buildings that would like to go solar but often can’t make projects pencil out without federal tax incentives.

If, as Morris mentions in his original post, financiers can combine the tax credits with solar security financing, it could nearly halve the cost of solar power. (Note: my figures differ from his because I calculate the levelized cost (no profit) rather than the cost of solar with a return on investment for the solar project developer).

The financing model doesn’t just lower costs, but could pour billions of additional dollars into the renewable energy financing market and, particularly, could lower financing costs for small projects by bundling their value.

There’s some evidence that simplifying financing could have big returns. Germany provides very simple, low-cost financing with its feed-in tariff and pays significantly less for solar power (when adjusting for the solar resource quality) than we do in the U.S. A well-regulated solar securities market could put a big dent in the cost of U.S. solar while simultaneously expanding the opportunity for local ownership.

Note: I just came across this analysis that suggests securitization for solar is not yet an easy sell.

This post originally appeared on ILSR’s Energy Self-Reliant States blog.



I don't like paywalls. You don't like paywalls. Who likes paywalls? Here at CleanTechnica, we implemented a limited paywall for a while, but it always felt wrong — and it was always tough to decide what we should put behind there. In theory, your most exclusive and best content goes behind a paywall. But then fewer people read it! We just don't like paywalls, and so we've decided to ditch ours. Unfortunately, the media business is still a tough, cut-throat business with tiny margins. It's a never-ending Olympic challenge to stay above water or even perhaps — gasp — grow. So ...
If you like what we do and want to support us, please chip in a bit monthly via PayPal or Patreon to help our team do what we do! Thank you!
Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

Written By

John directs the Democratic Energy 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 seminal 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 (, and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at


You May Also Like


If you’re like me at all, getting a new e-bike makes you feel like Pee Wee Herman. It’s fun! It’s fast! It helps you...

Clean Power

Originally published at An advocacy group in Boulder, Colo. has made the case for why utilities, not customers, should be responsible for the...

Clean Power

With financial rewards tied to building big things, and a 100-year history of doing so, utilities overlook distributed energy resources like rooftop solar. State...


The need to decarbonize our economy presents new opportunities to increase electricity demand beneficially. And doing that — particularly by electrifying transportation — has...

Copyright © 2023 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.