Renewable Energy World - March / April 2014

Unlocking Solar Energy’s
Value as an Asset Class
Te solar
industry is
eagerly awaiting new
fnancial innovations.
Will 2014 be the year
of the solar dollar?

JAMES MONTGOMERY, Associate Editor

2014 is being predicted as a
breakout year for solar ener-
gy fnancing, with the industry
eagerly pursuing several fnance
innovations. Many of them aren’t
really new to other industries,
of course (think home mortgag-
es, auto and student loans, life
insurance, heavy equipment
leases), but they are potential-
ly game-changing when applied
in the solar industry. Not all
options are ready to step into the
spotlight, though. Master limit-
ed partnerships (MLP) and real
estate investment trusts (REIT)
promise more attractive tax
treatment than securitizations or
yieldcos, but they require some
heavy lifting and diffcult deci-
sions at the highest levels: MLPs
need an act of Congress in order
to make an infnitesimal lan-
guage tweak to remove a legisla-
tive exclusion to solar and wind,
while REITs involve a touchy
reclassifcation of assets from
the IRS that could have broader and undesirable tax conse-
quences. Yet another model gaining traction is a more insti-
tutionalized version of crowdfunding, led by Mosaic (tech-
nically they call it “crowdsourcing”), but crowdfunding is
awaiting more clarity from the Securities and Exchange
Commission about what rules must apply.

And so, while patiently waiting for Paleozoic movement out of Washington, the industry is turning its attention and anticipation toward ushering in two other new fnancing models: securitizations (converting an asset into something that is tradable, i.e., a security) and “yieldcos” ( publicly traded companies created specifcally around energy operating assets to produce cash fow and income). Their build-up actually began last year: in the fall SolarCity fnal-ly launched the frst securitization of distributed-generation solar energy assets, with a pledge to do more and signifcantly larger ones in the coming quarters and throughout 2013 several companies (NRG, Pattern, Transalta, Hannon Armstrong) spun off yieldcos with varying levels of renewable energy assets in their portfolios.

Just weeks into 2014 we’re already seeing an uptick in activity. While the industry awaits SolarCity’s next securitization move, in the meantime the company has acquired Common Assets, which had been building up a Web-based platform for managing fnancial products (most especially renewable energy investments) for individual and institutional investors; the frst SolarCity-backed products are expected to start rolling out by this summer. We’re also hearing rumors of up to half a dozen other securitization deals working through the pipeline, referencing unidentifed large players with long histories of building out projects — some names frequently invoked as potentially ftting those criteria include familiar residential-solar companies such as Vivint, Sunrun, Sungevity, and several others.