The big news of the week for solar was the US Department of Energy (DOE) loan guarantee for 733 MW of distributed rooftop solar projects. In case you missed the nuance, NRG, Prologis and Bank of America (BOA) are taking the first steps towards solar project securitization of rooftop installations. A few weeks ago NRG had announced they would be entering the rooftop solar sector and look at securitization as possible funding strategy.
This week’s news lifts the veil on the big plans that BOA, NRG and Prologis have hatched. We’ve been advocates of a securitization solution (see ASF Journal, Winter Edition 2011, “Securitization’s renewable opportunity,” by John Joshi) for solar leases and power purchase agreements for some time now and the recent news only confirms that it’s going to happen a lot faster than we expected.
Going forward the market is going to need a standardized solar lease and power purchase agreement with which the rating agencies and the markets can be comfortable.
In my conversations with Jonathan Silver, of the DOE loan guarantee program, we discussed a similar concept and he agreed that a capital markets approach was the ideal mechanism to scale the deployment of solar distributed energy. I could not have imagined at that time that the ground work for this had already begun.
We have been advocates of government policy support for the sector and hope that Congress will extend the DOE program as well as the ITC Cash Grant program. The DOE guarantee will allow a structured transaction to be accepted by the capital markets investors, similar to the GSE guarantees for CMO and RMBS transactions.
There are 44 million rooftops in the United States that could be used to deploy solar and to create local distributed energy and jobs. We expect to see continued innovation with “Green” mortgages with embedded renewable energy loans to help move the adoption of solar energy forward. Securitization will allow deeper access to capital for projects and provide a new asset class for fixed-income and sustainable investors.
The adoption of solar has always been linked to financing and funding. An integrated capital markets approach as developed by NRG, BOA and Prologis will allow capital to flow into the sector at a faster pace than relying on the tax-equity markets or other non-organized sources of capital.
Going forward the market is going to need a standardized solar lease and power purchase agreement with which the rating agencies and the markets can be comfortable. Standardization will allow a portfolio approach to analysis and create transparency and broader liquidity for securitized transaction.
The capital markets industry associations as well the solar energy associations now need to work towards a standardized solar lease and power purchase agreement similar to the auto industry and other sectors. Our firm would be happy to coordinate the standardization of solar leases and power purchase agreements effort for the various stakeholders.
I look forward to the first true securitized solar transaction in the not too distant future. This week’s news gives me confidence it won’t be a long wait. We can truly strive to achieve energy security, job and economic growth locally by sourcing the capital markets for renewable energy transactions.
John Joshi is a managing director at CapitalFusion Partners LLC, an advisory firm focused on renewable energy and infrastructure projects. He also runs the Carbon Finance & Securitization group on LinkedIn. Mr. Joshi can be reached at jjoshi@capitalfusionpartners.com
