As much as the industry would like to have solar installed on every roof in the United States, installers and developers often struggle to find financing.
Many state and federal incentives are being re-examined and could be eliminated entirely. As a result, the industry is looking for new and innovative ways to get funding for their projects.
Rob Sternthal, president of Reznick Capital Markets, says the tax-equity funding market for utility-scale projects is alive and well despite rumors of its imminent death. But small-scale commercial and residential installations are still finding it hard to use this funding avenue.
“Finding debt for solar distributed-generation (DG) projects is not easy,” Sternthal says. “More and more regional banks are starting to jump in the game, but they are still reluctant to provide long-term loans and generally do not understand solar well enough yet to get through due-diligence or tax-equity financing easily.”
One way Sternthal sees smaller DG projects being funded is through a process called “bundling.” A project developer will bundle several projects together, usually totaling between 10 and 25 MW and worth $50 million and up. “Until you reach that level of money, you’re going to have trouble getting debt and tax-equity investors interested in funding them,” Sternthal says.
The residential market has boomed in part because leasing companies such as SolarCity, OneRoof Energy and Constellation Energy created funding models that put solar installations within reach of people who didn’t think they could afford it before. Sternthal sees that trend expanding the solar market moving forward.
Real-estate investment trusts (REITs) are also slowly entering the solar financing mix. REITs are companies that own and often operate real estate that produces income, which make solar a natural market for them. Think of REITs as real-estate mutual funds, allowing a variety of investors to pool their resources and own real-estate holdings without the risk of owning individual properties.
The movement is currently in its infancy, but companies like Delaware-based Mainline Solar are banking on more REITs entering the market and being in need of its deal-brokering services.
Lastly, and perhaps most innovatively, is crowdfunding, where individual investors pledge their own money to fund small-scale solar projects and earn steady returns.
The company making the most news in solar crowdfunding is California-based Mosaic, whose Founder and President Billy Parrish says crowdfunding will completely change the way people fund projects.
“There was no way for people to invest directly in solar projects,” Parish says. “We believe the transition from fossil fuels to renewable energy has the potential to be the greatest wealth-producer of our time, and we wanted to create a mechanism so more people could share in it.”
To solar developers, Mosaic looks like a bank, Parish says. What is different is how they raise money from individual and institutional investors. Mosaic vets projects as rigorously as banks to ensure project quality for investors.
Parish believes the future of crowd-funding lies in communities that decide to generate and fund their own projects. He also hopes more solar-industry workers invest in their own industry.
“For solar-industry participants who have a vested interest in seeing the industry succeed, this is a great opportunity for them to show that with their own money,” Parish says. “We are looking for people who are as passionate about solar as we are to fund projects everywhere.” SPW
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