To hear more about solar financing, check out this free webinar December 8th which will address some of the biggest obstacles to funding mid-scale or community-scale solar projects and explores creative solutions for overcoming those obstacles.
By Adam Boucher
Did you know there are over 17,000 solar companies in the US? These companies employ over 100,000 people – half of them in installation. And the vast majority of them are small-scale clean energy developers like Stacey Danner and Lea Keal in New Orleans.
When we first met Stacey and Lea they’d already founded Sustainable Environmental Enterprises (SEE) to help a low-income neighborhood in New Orleans offset energy bills with solar power. They’d built a demonstration center right in the neighborhood so residents could literally see how the panels worked and compare real before-and-after energy bills. But despite having successfully installed dozens of systems already, they were unable to get loans from local banks to expand their program. Across the country, thousands of community-scale clean energy developers are facing the same financing challenges as Stacey and Lea.
As a clean energy financier, we work with companies like SEE to lend them the capital they need to get their projects built. Instead of lending on credit like a bank, we’ve developed an asset-based approach using government incentives as collateral. The stimulus program’s 1603 Cash Grant has been an enormous asset in this regard, supporting much of the growth of the community-scale solar market over the last two years. The Grant provides developers with a government check for 30 percent of the project’s cost upon completion. This means we can lend developers a portion of the financing they need to get projects built and use the government rebate checks to pay back the loan.
Yet even with the 1603 Grant in place, it’s very challenging for community-scale developers to get upfront financing.
The reason these developers face such an uphill battle is that the government supports renewable energy largely through federal tax incentives that favor big players.
A tax-based incentive structure is both costly and complicated. For solar’s top players the system works because they have the scale, sophistication and resources to put all the pieces together and access what we call the entire “capital stack.”
Top-tier solar developers are supported by Wall Street banks that provide construction financing as well as long-term debt. And they partner with profitable corporations like Google, GE and PG&E who receive significant tax breaks for investing in solar projects. The complexity of the legal, tax and accounting structures required, means only large deals of $30 million or more are considered.
But for the vast majority of solar installers it’s a different story. These developers need financing in the $500,000 to $5 million range, and they rely heavily on incentives from local utilities, and the blessing of the 1603 Cash Grant program.
With the 1603 Cash Grant scheduled to expire at the end of this year, small solar developers will face serious challenges finding financing in 2012. Many are simply hoping that the grant will be extended. Unfortunately, the chances of that happening are very slim, and the reality is many small developers will likely go out of business next year.
There is one important strategy we’re working on with our partners which can help small solar developers – if they act fast.
The 1603 Cash Grant program has a Safe Harbor provision, allowing projects to qualify for the grant if they pre-invest 5 percent or more of the total project costs by Dec 31, 2011. This benefits community-scale developers because the 5 percent can be invested in equipment costs. The catch, of course, is they need enough capital to purchase a significant amount of equipment before the end of the year. They also need the expertise to structure their Safe Harbor properly to ensure their projects qualify for the grant extension.
Over the years I’ve worked in this industry I’ve come to realize that financing clean energy takes more of a sharpshooter than a shotgun approach. There is no single solution that will work for everybody, and the market is rapidly evolving.
It will take innovation and creativity to overcome these obstacles and finance solar’s community developers. But I’m continually impressed by the amazing entrepreneurs we work with. Operating in this market requires more than just fast, effective financing. It requires the passion and commitment to make the world a brighter, greener place. Fortunately, there’s no shortage of that.
As CEO and Founder of Adam Capital, Adam specializes in bridging the financing gaps for distributed scale solar developers. Over the past three years, the company has funded hundreds of projects and provided over $30 million in loans to build clean energy projects around the country.