Solving the Puzzle of Solar Financing: The View from Intersolar North America


At Intersolar North America, experts discuss the state of solar financing and where the industry is headed. Despite real challenges, solar financing has come a long way. And the best may be yet to come.


No solar project can happen without financing, and financing can be hard to come by. So it’s not surprising that Intersolar North America devoted an entire day to the topic. I wasn’t able to attend the whole Solar Finance and Asset Symposium, but even a couple morning sessions yielded valuable insights.

Moderator Tim Keating, Development Director of the SunSpec Alliance, kept things lively as presenters discussed solar financing trends and developments.

How far solar has come


Michael Eckhart, Managing Director of Citigroup Capital, was conducting studies on new energy technologies as long ago as the 1970s and gave us a little history to start the day.


It was good to get this perspective as he reminded us that back in 1976 (yes, before some people in the solar industry were born!), the Department of Energy (DOE) set a goal of getting solar power down to 50 cents a watt. We’ve far surpassed that goal, having already arrived at 25 cents a watt in 1976 dollars.


At the same time that the cost of solar has decreased, innovations in financing have increased. Last year saw major advances in solar REITs, securitizations, and YieldCos. 2014 is continuing along this trajectory, with green bonds and more.


Eckhart noted that we’ve finally arrived at the point where capital markets have accepted solar power — after 30 years. He emphasized the importance as we go forward of SunSpec, a global information standards trade alliance for the distributed energy industry. “It’s not only important,” he said, “it’s the thing.”


Shayle Kann, Vice President of Research at GTM Research, pointed to financial drivers of the residential solar market. Third-party ownership (TPO), he said, has been the single most important innovation in that market. Historically there hasn’t been as good a loan product. But that’s changing, and more companies are offering both TPO and loan options — capturing more of the market.


The state of solar costs and financing is such, Kann said, that the California residential market is now functioning on its own without the California Solar Initiative.


Two important things to keep in mind: It’s been a “long slog,” as Eckart put it. The success we see now didn’t happen overnight. And it hasn’t happened by accident, either. The progress that’s been made, though it’s taken a long time to come, has been intentional. We need to continue in an intentional manner to drive the market forward.


Challenges remaining for solar


Kann pointed out that though the U.S. solar market is robust, it’s still reliant of a few key states. That means that it’s particularly subject to policy vicissitudes. And it also means that some states, like Hawaii, are hitting saturation points earlier.


Even with higher grid saturation, solar remains a small percentage of power generation at less than 0.5% in most of the top markets. And further growth is being challenged by utilities. Kann posed the question, Why are utilities paying so much attention and fighting distributed solar so much, even though it’s still so small?


The answer: Load growth. Load growth is what drives profits for utilities, and load growth has been decreasing, in part because of increased solar generation. This has led to major battles around the country as utilities try to undermine net metering policies.


Other challenges remain in both the commercial and utility-scale sectors. The small commercial sector has been tricky to grow, in part because those projects are less uniform and require varied approaches. Kann even suggested that we not only haven’t figured out this market but may have gotten worse at dealing with it.


The utility-scale market also faces challenges as states achieve their Renewables Portfolio Standard (RPS) goals. That’s led to the U.S. market remaining flat, said Eckhart, because although residential solar has been growing, utility-scale installations are on a downswing.


Eckhart and Kann agreed that the phasing out of the Investment Tax Credit (ITC) will pose some challenges to the solar industry, though Eckart believes these will be short-lived.


Trends in favor of solar


Now for the upsides.


A big one is in the area of net metering. Despite the many well-funded challenges, Kann pointed out that we haven’t yet seen a major loss on net metering anywhere.


A bill in the Massachusetts legislature, he said, could provide a sign of things to come for net metering. What’s key about the bill is the negotiated compromise between “almost the whole solar industry” and the utilities. The legislation introduces a minimum bill for all utility customers instead of a fixed charge for solar customers.


In the area of commercial solar, companies like REC Solar are coming up with innovative financing to expand the market.


And prices for utility-scale PPAs have come down so much that we’re starting to see more of those projects despite states meeting their RPS targets. Kann pointed to at least 3 GW of these projects over 12 months that were not dependent on any RPS.


When it comes to solar in general, Kann said, we’re heading in the direction of more states opening up; some are now even able to start a solar market without incentives.


Eckhart is bullish on the solar industry. While it can take 15 – 20 years to see cost decreases related to technical innovation, he said, enough breakthroughs are happening that we can expect costs to continue on their downward trend. Though Kann pointed out that “there’s not that much blood to let,” he also conceded that costs are continuing to come down at least somewhat.


Public acceptance of solar, meanwhile, is on an upswing.


Kann and Eckhart seemed to agree that it’s an exciting time for solar in the U.S. As Eckhart concluded, “I think we got a winner here.”