Need for Capital in the Solar Industry

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By Phil Narodick

Originally published on Mosaic

In the past few years, the solar industry has been suffering from a lack of capital on both the equity and debt fronts. Despite remarkably high rates of return, tax equity investment still only amounts to around $4 billion per year — roughly 0.2% of its potential in the United States based on total individual and corporate tax appetite. Similarly, while lenders have provided capital for utility scale solar, debt financing for residential PV remains at very low levels. Bloomberg New Energy finance predicts that maintaining US solar deployment growth will require substantially more investment: roughly $6.9 billion annually through 2020. 

This shortage has affected both the liquidity and cost of capital in the solar industry, which in turn raises the cost of photovoltaic systems. Some sources estimate that financing costs drive up the cost of a solar project’s electricity by as much as 50%. Additionally, lack of access to financing has caused bottlenecks for the deployment of residential systems — SolarCity states in their S-1 that in 2008 and 2009 their customers encountered a substantial waiting list for financing.

One way of facilitating the flow of capital to the residential solar industry would be to increase the number of investors. Currently around a 16 financial institutions — and seven in particular — make up the majority of investment in the residential solar industry. In order for the United States to truly transition away from a fossil fuel economy, this number needs to increase by at least an order of magnitude.

This transition will not happen without making it easier for individuals to invest in systems. Individual investment is straightforward in many European markets, but not in the U.S. As I wrote in my post on Master-Limited Partnerships, United States tax structure actually makes individual investment in fossil fuels energy projects much easier than renewable ones. Adjusting the tax code to allow for solar Master-Limited Partnerships would dramatically level the playing field — some forecasts predict the increase in capital available to be several billion by 2020. There is already a bill in congress, called the Master Limited Partnership Parity Act, that aims to make this adjustment.

In the meantime, Mosaic is launching an innovative model that uses crowdfunding to finance solar projects, opening up new capital from everyday Americans and greatly increasing the number of potential investors for a PV system. Mosaic pairs rooftop solar projects with a portfolio of investors, creating the opportunity for individual, long-term investments in U.S. clean energy infrastructure.

About Phil Narodick

Phil Narodick is a cleantech enthusiast and former founder of Solar Pathway, a startup working on creating a market for community supported solar arrays. He has worked as a project finance analyst for Solar Trust of America and has a background in energy consulting. In addition to being an evangelist of innovative solar finance and impact investing, he holds both a Master’s and a Bachelor’s degree from Stanford University.

Disclaimer: Any opinions expressed herein by persons not affiliated with Mosaic reflect the judgment of the author and not necessarily that of Mosaic. Nothing herein shall constitute or be construed as an offering of securities, or as investment advice or recommendations by Mosaic. Mosaic’s investments are limited to investors who meet applicable suitability standards based on income, net assets and state of residence. Please click here to learn more.