A Look At Solar Securitization

Originally published on NREL. Since 2008, solar capacity additions have exhibited a compound annual growth rate of over 50%, with strong gains anticipated in the coming years. As the industry grows, it is exploring alternative financing options outside of its traditional funding sources (namely debt, tax equity, and cash equity). Securitization—the process of structuring an illiquid asset into a liquid and tradable one (i.e., a security)—represents an emerging opportunity for the distributed solar market in particular. Access to the capital markets through security issuance can assist the solar market in achieving greater liquidity among investors and an advantageous cost of capital relative to traditional funding sources (namely debt, tax equity, and sponsor equity). Liquidity and lower financing rates have both proven somewhat elusive given solar’s current reliance on project financing and tax equity structures. A new report from the National Renewable Energy Laboratory, The Potential of Securitization in Solar PV Finance, explores this capital market finance option for PV assets. The report provides a general overview of the securitization process (see Figure 1), the actors involved, the benefits (and risks), and the rationale for pursuing this kind of funding strategy.

Solar projects will likely be pooled into different types of securities based on several factors, including: project size; the type of cash flows securitized; and the entity that will issue the securities. The report broadly identifies three classes of securities that, upon preliminary analysis, would be applicable to the solar industry: asset-backed securities (ABS), collateralized loan obligations (CLOs), and project bonds. ABS securitizations will be widely applicable to the residential solar sector, as the metrics for evaluating these instruments (e.g., FICO scores) are similar to those for evaluating the credit quality of residential solar assets. CLO securitizations will be more applicable to the commercial sector. This is because the cash-flow pools will require fewer underlying systems to reach the same dollar volume as a residential. Fewer systems mean fewer offtakers, which in turn mean less portfolio diversity. And, without a diversity of offtakers behind the cash flows in the pool, there is greater focus on the creditworthiness of each offtaker.

Typically, CLOs are the appropriate securitization structure to manage this kind of corporate risk. Project bonds are debt securities issued against project-level cash flows and have been used to finance utility-scale projects. A bond obligation can look similar to a non-recourse loan on a balance sheet, though it has the distinct advantage of tapping into funding sources outside of the commercial lending market and at larger sums. Institutional investors, such as pension and insurance funds, will typically allocate about 5% of their assets for “alternative investments,” such as a renewable energy project investment. Courting these entities will therefore require solar to transcend the “alternative” category and offer itself as a bankable, standardized, and transparent investment product. 60 billion worth of assets, a third to a half of which would likely have securitizable cash streams flowing through them. 20 -30 billion base of long-dated assets, made liquid through securitization and investment grade through continued understanding of the credit risk, would be a strong draw for many of the investors in that conventional category. Renewable Energy Finance, Solar Securitization: A Status Report (Fact Sheet). Golden, CO: National Renewable Energy Laboratory. Lowder, T.; Mendelsohn, M. (2013). The Potential of Securitization in Solar PV Finance. Golden, CO: National Renewable Energy Laboratory. Turner, G.; et al. Profiling the Risks in Solar and Wind: A Case for New Risk Management Approaches in the Renewable Energy Sector. Swiss Re and Bloomberg New Energy Finance. TheCityUK. (September 2013). Fund Management 2013. TheCityUK. Guest Contributor is many, many people. We publish a number of guest posts from experts in a large variety of fields. This is our contributor account for those special people. Where In The World Is It Cheapest To Charge A Tesla?

New Nissan Leaf vs. Carmakers are still working on those expensive electric SUVs like the e-tron or the EQ C, much cheaper hatchbacks are already a reality. They have been around for several years and are selling quite well. Despite that, comparative reviews between the Nissan Leaf, Renault Zoe, and Volkswagen e-Golf are pretty rare. Considering Sunderland now assembles an all-new version of the Leaf, his segment needs a re-visit. Pay attention guys, because of the outcome of this video will tell us what state the EV market is in right now. Let's just start with the range, because that's the biggest problem cheap electric cars had/have. The official numbers put the Nissan Leaf ahead at 235 miles, followed by the Zoe at 230 miles. Even though the e-Golf just got more range during Volkswagen's facelift, it's still lagging with 186 miles. But, those are unrealistic numbers. The e-Golf was last, but its range was shockingly bad - only 93 miles or half of what's officially claimed.