Earlier this week, SunEdison Inc. closed financing and broke ground on the 156 MW Comanche Solar project for Public Service Co. of Colorado, a subsidiary of Xcel Energy. Although the scale of the project makes it big news, it is also notable for its use of a new type of financing vehicle.
Comanche Solar is the first project to receive financing through SunEdison's $1.5 billion First Reserve warehouse facility. The financial vehicle is an example of how project financing is evolving to meet the needs of investors and developers alike. Julie Blunden, senior vice president and chief strategy officer at SunEdison, says the warehouse serves a number of useful functions that should ultimately bring the cost of financing down.
‘The notion of a warehouse, is essentially, really quite like a warehouse,’ Blunden says. ‘It's essentially a storage location where you have a set of parameters that are pre-negotiated with your equity providers and lenders. The parameters are a checklist, and if the project meets all of the required characteristics, then you may proceed with financing without having to re-negotiate with all parties. The overall concept should reduce the overall cost of financing over time.’
All of the projects in the same warehouse have to be similar enough for a common checklist to be applicable to all of them. The First Reserve warehouse for Comanche Solar could potentially house other large-scale utility solar projects with similar characteristics. Different warehouse vehicles could conceivably be created for portfolios of residential or small commercial projects.
In addition to providing a clear set of criteria for project funding, the Blunden says the warehouse also provides transparency for all involved. The amount of money in the warehouse expands and contracts with the amount of megawatts under development and as projects move through the pipeline. As projects near completion, they are moved out of the warehouse structure and over to SunEdison's yieldco affiliate, TerraForm Power.
‘This is one of those activities where we are creating a new type of financial vehicle that is specifically intended to be able to accommodate a flow of construction and operating assets as they move from one spot in the value chain to another,’ Blunden says.
The concept of the warehouse dates back to SunEdison's acquisition of First Wind in November of last year. Blunden says that with the growth in the solar sector, there will naturally be an evolution of the financial structures around it.
‘As people see the inevitability of the growth of a sector, they want to figure out how to participate in it and how to lower the cost of participation,’ she says. ‘This is a self-fulfilling prophecy. The lower the cost of financing, the higher the probability of the growth continuing.’
Photo: Jeff Ackermann, director of the Colorado Energy Office, signs a solar panel during the ground breaking ceremony at the SunEdion 156 MW Comanche Solar project.
Photo by Justin Levitt, courtesy of SunEdison