From a developer's point of view, each individual element of a distributed solar project portfolio is admirably flexible. However, the end result of all this flexibility is that the developer is going to have a lot of small projects. From a financing perspective, this introduces a level of complexity that is lacking in centrally located generating assets, which readily attract private capital.
‘When you start looking at smaller projects, you immediately begin to think, 'How do I finance this in the most efficient way possible?'’ says Thomas Fink, senior vice president and managing director of Trepp Inc., a financial services and consulting firm based in New York City. ‘One way you do that is by tapping the public capital markets.’
Fink is also on the board of the Solar Energy Finance Association (SEFA), the organizer of the Sunshine Backed Bonds conference that is taking place in New York City later this week. The conference, now in its third year, focuses on issues related to how the solar sector can access public markets to finance projects.
‘You can raise money in the private markets,’ Fink says, noting that there are hedge funds, private-equity funds and institutional investors that will buy bonds and provide capital in the private markets. ‘But how do you get to the larger markets, which are the public capital markets?’
The first Sunshine Backed Bonds Conference took place] right after the National Renewable Energy Laboratory received a U.S. Department of Energy grant to start the Solar Access to Public Capital (SAPC) initiative. One of the purposes of SAPC was to identify the obstacles that were keeping solar projects – particularly distributed solar – from gaining access to the public capital markets.
SEFA, which grew out of the SAPC initiative, is working create an environment where public capital is readily available for solar projects, including distributed ones. The desirability of accessing public markets stems from its size – tens of trillions of dollars – and great diversity of the capital ‘infrastructure.’ These characteristics have the potential to make financing solar projects with appropriate public capital vehicles less expensive than financing the projects with private-equity sources.
In addition to the ongoing SAPC effort, there are a number of state initiatives, such as California's property-assessed clean energy (PACE) finance programs, Connecticut's commercial PACE and various ‘green bond‘ initiatives that are trying to assist the solar sector in accessing the public capital markets.
According to Fink, the prospects for opening pubic capital markets to solar are good because solar assets share many of the characteristics of real estate assets, which are routinely financed by public vehicles. Ideally, the solar sector should be able to follow the route of the real estate market, which has real estate investment trusts, commercial mortgage-backed securities, bank lending, insurance company lending and all sorts of other options.
Educating sources of public capital about the opportunities and risks of solar development is one way forward. Another is for solar developers to learn the ways of public capital providers and to find ways of appealing to those sources that best fit their business models.
‘What I think is fascinating to watch is how fast the solar sector evolves in terms of its financing vehicles and its techniques,’ Fink says. ‘People are experimenting and working with different structures – finding those structures that make sense for the business strategy they are following. All of this is focused on getting the long-term cost of capital down by putting the right risk with the right capital market player at the right price.’
For more information on the Sunshine Backed Bonds conference agenda, click here.
