Financial innovation—particularly at the retail level—is critical to fostering ongoing growth and development of solar and renewable energy projects. To see the triple bottom line potential to be realized, one need only look at the popularity and rapid growth of residential and community solar energy providers using third-party ownership business models by making home solar photovoltaic (PV) energy systems affordable for a much wider range of Americans.
Adapting a well-known and tremendously successful investment vehicle—the Real Estate Investment Trust (REIT)—to finance solar power projects, San Francisco’s Renewable Energy Trust (RET) sees an opportunity to significantly broaden solar energy investment opportunities for individual, as well as professional, investors while at the same time substantially reducing the cost of capital for project developers.
Significantly for solar power project developers, San Francisco-based RET says applying the REIT structure to the solar power industry can lower the cost of capital for solar power development by as much as 20 percent.
Democratizing solar PV project investment
A similar tax-advantaged renewable energy investment vehicle initiative is under way in Washington, D.C. Senators Christopher Coons (D-Delaware) and Jerry Moran (R-Kansas) on June 7 introduced legislation that would extend master limited partnerships (MLPs)—special purpose investment vehicles that oil and gas companies have used to great effect—to renewable energy projects.
Applying the REIT structure to finance solar power projects, “would be the ultimate democratization of funding and support for the solar industry,” stated RET president, Karen Morgan, in a press release. “Individuals can actively invest, knowing their dollars will put up more panels—while buying them a piece of the action in the fast expanding clean energy sector.”
Asset financing for U.S. PV projects—has grown explosively, by a compound annual growth rate (CAGR) of 58 percent since 2004, according to Bloomberg New Energy Finance, which projects that some $6.9 billion in additional capital per year will be invested in developing solar PV projects through 2020. McKinsey & Co. forecasts that another 80-gigawatts (GW) to 130-GW of new solar PV generating capacity will be commissioned in North America by 2020, RET noted.
Opening up tax-advantaged solar projects to individual investors
Required to distribute 90 percent or more of their taxable income, REITs offer investors substantial tax advantages as well as relatively high yields and steday income streams. As they can be listed and traded on the major stock exchanges, they are also liquid.
“RET is extending a mature and fully-developed financing mechanism to a new asset class, in the same way REITs have done over and over. Innovation is a normal part of the REIT industry,” RET’s chief financial officer (CFO) Christian Fong elaborated.
“REITs became the dominant investment vehicle for commercial real estate, and then evolved to include real estate-dependent sectors from cell phone towers to data centers to energy transmission. And through RET, we believe they can soon be a key investment vehicle for accelerating the growth of solar power.”
Supporting RET’s initiative is California Clean Energy Fund (CalCEF), “an independent, non-profit corporation working to advance clean energy using tools from finance, public policy and technological innovation.” CalCEF itself employs an innovative “evergreen” fund-of-funds investment strategy in which profits are reinvested to further realize its objectives, working with partners at the local, state, national and international levels.