In the U.S. solar is coming into a new age of financing arrangements. Even prior to MidAmerican Energy Holdings’ issuance of bonds to support the 550 megawatt Topaz Solar Farm in California, the U.S. solar energy industry was eyeing the creation of securities and bonds to finance solar projects rather than tax equity or other financing structures.
While some of the first bonds or securities supported giant, utility scale projects, they’re also ideal for financing residential portfolios. In fact, late last year SolarCity introduced securities for support a residential solar portfolio. That’s the idea behind Mercatus’ new 2.0 platform to support financing by securitization of both commercial and residential solar portfolios.
"The solar sector has seen massive shifts in the last 18 months,” said Mercatus CEO Haresh Patel. “While the cost of technology and installation have fallen dramatically, one factor has remained constant—the high cost of financing. Developers, tasked with originating bankable projects, are failing to attract capital as evidenced by abysmal closure rates of 1 percent to 2 percent annually. Solar energy investors—lacking the resources, best practices and in some cases, domain expertise to make expedient decisions—are simply not deploying capital."
Securitization of solar projects is an ideal way to finance them because it plays into the economics of solar better than tax-equity or loan financing. Loans and tax-equity funds are shorter-term means of financing solar projects and they also carry higher interest rates—they can carry even higher interest rates when a technology is considered new or unproved. However, incentives for solar power like loan guarantees and even the Investment Tax Credit (ITC) have encouraged such types of financing.
Solar bonds or securities, on the other hand better match the economics of solar power, since it generates power for 25 or more years. As such solar power can yield a long-term, low-risk return at a low interest rate. This also helps it attract a new class of investors from insurance companies to retirement plans and even individual investors, whereas tax-equity funds attracted banks and companies needing a way of offsetting high taxes for their high returns by investing them (i.e., Google, etc.).
There’s still a dearth of offerings in this space. That’s what Mercatus is trying to help alleviate with its new Mercatus 2.0 platform for solar energy investors. "As Wall Street begins to eye the industry as an emerging asset class, new financing vehicles…require a sophisticated solution to rapidly deploy capital and help the industry reach its full potential, both as a mainstream source of distributed generation and a viable asset class," said Mercatus CEO Haresh Patel. These include master limited partnerships (MLPs), real estate investment trusts (REITs), the resurgence of property assessed clean energy (PACE) financing and more.
"Mercatus 2.0 is the answer, providing the fastest and most accurate solar investment analysis and decision making tools in the industry,” Patel asserted. The new tool includes portfolio analysis and automated ratings for both the residential and commercial segments, which the company anticipates will help meet the need for new security-based financing in 2014.
Mercatus said its platform has already been used to assess more than 11 gigawatts of solar projects and serves 40 percent of the distributed generation U.S. solar market. For 2014 the company has closed Series A financing with Trepp, as well as Vision Ridge Partners, Augment Ventures and Shah Capital. For 2014 Mercatus customers are targeting $1.2 billion in distributed generation solar investments.Tweet