How Do You Finance a Commercial Solar Project?

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Just a small part of the packed house at the SF Environment event

If there’s one thing that’s true of solar financing, it’s that there’s no one formula for success.

That was evident at a recent panel discussion put on by the San Francisco Department of the Environment, Emerging Solar Financing Models. The panel represented a diverse range of approaches to commercial solar financing, as moderator Brad Heavner of CalSEIA pointed out. As people look to innovate, he said, we’re on the verge of multiple products being available to different types of customers.   

The rise of the yieldco

Ben Peters of SunEdison echoed the sentiment. He noted that the multitude of products we’re seeing in commercial solar financing are growing the market. Different approaches, he said, work for different customers, so the product offerings are expanding the pie rather than competing for the same customer segments.

Peters pointed to the yieldco as an example. Yieldcos have been on the rise in the solar industry. They’re publicly traded companies that own clean energy assets. These assets generate ongoing cash flows that maintain the arrays and also provide dividends. “Yieldcos want to own those assets much more than your customers do,” Peters told the audience. The trick is to translate that into a customer offering that makes sense. “If you can make it feel like an owned product,” he added, “it could be a good offer.”

SunEdison’s TerraForm yieldco has drawn a lot of attention, including $145 million in equity financing from Google.

What does the future look like for the yieldco? Given Peters’ assertion that there are currently more yieldcos than there are projects for them, the yieldco looks like a promising option for project developers to pursue.

Financing green projects with PACE

Want to finance more than just solar? Renewable Funding could be the company for you. In addition to solar, VP Brad Copithorne said, the company finances energy efficiency, storage, electric vehicles — basically, anything green. Boasting a CEO who invented Property Assessed Clean Energy (PACE), Renewable Funding is well aware of the problems this creative financing mechanism solves. A big one for commercial solar is the problem of credit. Very few commercial buildings have the credit for more traditional financing. Because PACE is repaid through property taxes, which always get paid, it’s attractive to lenders — or as Copithorne reminded the audience, “Nothing’s sure but death and taxes.”

Renewable Energy can provide 20-year financing at slightly below 6%, and they’ve capped finance costs at 3%. The company is working on an online system that will allow potential customers to enter an address and see what PACE financing it qualifies for. Copithorne noted, “People buy solar, or storage – not financing.” Renewable Energy can help by taking on that part of the deal. The company is set up to work with channel partners, and can either deal directly with customers or let the partner take care of that — in another example of how in solar financing, one size doesn’t fit all.

Crowdfunding solar

RE-volvHighlighting the broad range of customers and financing mechanisms, Andreas Karelas, founder of RE-volv, talked about the crowdfunding space. “There’s a huge appetite for funding,” he said, “and lots of projects that want to get built.” Add to that people who care about clean energy, and you have a good formula for solar crowdfunding. The most common models:

  • Investment, where the funder gets a return, which both Mosaic and Solar City are implementing.
  • Community-based investment models like Village Power and Collective Sun.
  • Cooperative ownership, as with Co-op Power and Energy Solidarity Cooperative.
  • Donation models like those of Everybody Solar and New Generation Energy.
  • And finally, the revolving fund, RE-volv’s own model. Though the city of Portland has also adopted this model, RE-volv may be the only solar nonprofit in the country to try it out so far.

How does it work? RE-volv raises money to put solar on a community center, which then saves 15% or more on their power bills. RE-volv earns 8-12% from the monthly payments for the system. “We don’t have to pay anyone back,” Karelas said, “so we pay it forward with interest.” That means that over the community center’s 20-year lease, revenues can be invested into three or more other projects. When it gets to 100 systems, RE-volv’s fund should be able to finance a new system every month. The nonprofit is currently crowdfunding its third project for a worker-owned cooperative in San Francisco.

Financing is for storage, too

You can’t talk about solar for too long these days without storage coming up. Russell Sprole of Stem, an energy intelligence platform, touched on the current trends in commercial storage financing. Fixed-payment leases and Shared Savings (similar to a solar PPA) are being used, he said, while major financial institutions watch the action from the sidelines.

Storage has some important differences from solar: The installation and removal costs are low, and a tax investor is not required to take advantage of tax equity incentives. On the other hand, there are fewer incentives for storage, and the asset has a shorter life — one that can best be compared to an inverter, rather than solar panels.

Storage also faces particular challenges. The lack of an operating history can be a concern to investors. And net metering tends to undervalue energy storage. But there are plenty of opportunities. Costs are coming down, and the fact that storage can’t take advantage of the ITC also means it won’t be affected by the decline of the ITC. As storage systems accumulate more history, their revenue reliability will be validated and financing costs will come down.

Photo credits: RE-volv