By 
While the first two quarters of 2009 won’t be remembered as the “brightest times” in the solar space, there are some positive shifts occurring on the solar finance front that will help the long-term viability and short-term health of the industry. On one hand there are fewer tax equity investors with solar experience than just 12 months ago, but there are also new entrants, including corporate, international and private equity investors that are positioned to become active players. These new types of investors have different investment profiles and requirements, opening up new avenues for project financing. This, combined with regulatory changes on the horizon is triggering new developments throughout the solar supply chain, particularly on the financial side.
Innovative financial tools, such as the “Power Purchase Agreement” (PPA), have become key drivers of the U.S. solar market. Developed as a way to finance the large upfront capital cost of solar energy systems, PPAs have enabled a whole new class of solar customers and become a staple of the industry. With the PPA, solar financiers have shown the wherewithal to successfully match financial innovation with solar technology progress to propel the sector’s growth. Now, with a new set of variables in the market, they are developing new financial innovations to keep moving the industry forward. While those innovations take time and great effort by many parties to come to fruition, they are underway.
These new mechanisms will take advantage of “newly-minted policies” from the Obama administration, in particular the cash grants for solar that are a part of the stimulus package. The grants provide a significant reprieve for the industry on a number of fronts: Banks will use the cash grant instead of the “investment tax credit” (ITC), allowing them to invest in more projects with less tax appetite. On the developer side, the payment of the cash grant upon project completion will enable immediate project ownership, instead of requiring a tax investor to be part of the financing. Historically, developers have had to wait five years or more before assuming ownership from the tax investor. Additionally, cash grants are appealing for construction financing, as they will reduce the perceived “take out” risk of the project. Initial guidance and the program application have just been released, and it appears that the DOE and Treasury have created an efficient program for stimulating green jobs.
Besides new entrants on the financing front, with many banks stabilizing and a positive policy outlook, some of the legacy players are also re-entering solar investing and we are also seeing some activity from non-traditional sources of permanent financing. For instance, regional financial institutions, utilities, and “FORTUNE 500″ corporations see distributed generation solar as a solid investment, particularly because of the recent 8 year ITC extension, the potential for cash grants to ease the upfront cash required and the basic principle that solar is a stable resource with low technology risk.
As to be expected when there is turbulence in the market, solar has witnessed a flight to quality. This applies to projects, in terms of credit and size, as well as developer partners with proven track records. While market conditions have created some additional hurdles for solar financing, they have also been a catalyst for change and innovation on how projects are financed, helping keep the long-term prospects sunny.
Paul Detering is CEO of Tioga Energy. He is a veteran entrepreneur with 20 years experience in clean technology.
Recent Comments