First Solar Bonds Financing $4.6 Billion US Panel Boom

July 8, 2012 by  
Filed under Green Energy News

Underwriters from Bank of America
Corp. (BAC) (BAC)
to Credit Suisse AG and Citigroup Inc. (C) (C) for the first time
are close to converting sunlight into cash to pay bond

Similar to asset-backed securities that finance everything
from car purchases to college tuition, solar bonds will help
fund rooftop power projects that Bloomberg New Energy Finance
estimates will need to raise about $4.6 billion next year.
Investors will be paid from monthly payments from people with
photovoltaic panels atop their homes and businesses.

Securitization will “open up substantial amounts of
liquidity and credit capacity to an industry that doesn’t have
it today,” said Bill Heskett, Bank of America Merrill Lynch’s
managing director of asset-backed securities. He said the first
deal may come in 2013 and declined to name potential issuers.

U.S. solar installations, including rooftop and utility-
scale projects, may jump at least 75 percent to exceed 3,200
megawatts this year, enough to supply about 700,000 California
homes, according to the Solar Energy Industries Association
trade group. Developers are seeking new sources of funding after
a U.S. tax incentive expired last year. They may have to pay
higher interest rates than more established asset-backed bonds
to attract investors.

Companies such as SunRun Inc. and SolarCity Corp. are
booming in the U.S. by financing rooftop solar arrays without
charging for installation. Customers lease the systems or buy
the electricity, typically for about 15 percent less than
standard power rates under 20-year contracts.

Esoteric Collateral

The bonds may help finance projects faster by tapping the
global market for asset-backed debt, which Asset-Backed Alert
newsletter estimated at $416 billion in 2011. Investors with an
appetite for risk may be targeted, as revenue streams from
rooftop solar projects have little track record.

Bankers have traditionally issued bonds supported by
revenue from assets like credit-card receivables or loans for
cars and houses. More esoteric securities are backed by
timeshare payments or royalty fees for popular songs. The use of
sub-prime mortgages as collateral for bonds gave rise to a crash
that triggered the 2008 global economic crisis.

Securitization is one of several new financing arrangements
for solar projects that Citigroup is seeking to develop, said
Marshal Salant, managing director of Citigroup Global Markets.

Securitization may eventually become a cheaper source of
capital than borrowing from banks or selling equity stakes in
projects in exchange for tax breaks, the most common types of
financing used by rooftop solar companies.

Securitization ‘Inevitable’

San Francisco-based SunRun, SolarCity of San Mateo and
Sungevity Inc. of Oakland, California’s largest rooftop solar
companies, have signed thousands of contracts with U.S.
homeowners and commercial customers. The monthly payments are
well-suited for being bundled together into a single,
securitized asset, said Jonathan Bass, a SolarCity spokesman.

“Securitization is inevitable in solar,” Bass said in an
e-mail, though SolarCity isn’t planning any such deals now.
“When you can offer solar electricity at a discount to utility
rates, you have a cash flow that is more predictable than
mortgage or car payments.”

The payments “look an awful lot like other pools of
consumer receivables or commercial assets that we have
securitized in different venues,” said Russell Burns, managing
director of asset finance, at Credit Suisse Securities USA.

Credit Suisse is seeking to develop solar-backed
securities, which will offer “a predictable source of liquidity
as the industry continues to grow,” he said.

The rooftop solar industry would benefit from a lower cost
of capital, which securitization may provide, Danny Kennedy,
Sungevity’s president, said in an e-mail. SunRun wouldn’t say
whether it plans to securitize its assets.

Large Portfolios

The portfolios of solar contracts have become “large
enough to attract investors,” said Anthony Kim, a solar analyst
for Bloomberg New Energy Finance.

U.S. residential solar projects may require as much as $1.3
billion in financing this year, according to Kim. If all the
contracts for panels installed atop homes last year were
securitized, it would generate about $428 million.

Commercial rooftop projects will need about $2.3 billion
this year, and securitizing last year’s contracts may provide
about $733 million, Kim estimated.

First Bond

One of the first solar-backed securities may be based on
contracts between Wal-Mart Stores Inc. (WMT) (WMT) and SolarCity, Kim said.
The retailer agreedin September to buy electricity from systems
that SolarCity will install on as many as 60 stores in
California. The anticipated revenue from those contracts may be
packaged into securities worth about $117 million now, Kim
estimated. Wal-Mart plans to have rooftop solar installed at 130
stores in the state by 2014.

The planned solar-backed securities will be based on many
small projects already in operation, making them different from
the $850 million in bonds Warren Buffett’s MidAmerican Energy
Holdings Co. issued in February to finance its $2.4 billion
Topaz Solar Farm in California. That debt will support the
construction of a single, utility-scale power plant expected to
be complete by 2015.

Standard Poor’s, Moody’s Investors Service and Fitch
Ratings, the three main ratings providers, have fielded
inquiries from solar companies about evaluating bonds, and none
of them have received a complete proposal.

“Real conversations are happening,” said Trevor d’Olier- Lees, a director of the infrastructure and renewables group at
SP. Creating solar securities will carry new types of risk,
notably the lack of payment history on the underlying contracts.

“The companies offering those agreements, they’ve only
been offering them for five or so years,” d’Olier-Lees said.

Limited History

“You’ve got a combination of limited payment default data,
and then you’ve got a duration of the financing that well
extends the experience,” d’Olier-Lees said. “How do you
project forward and say that payment performance is going to
continue for the next 20 years?”

Solar securities may be less risky than bonds backed by
mortgages or credit card receivables because consumers will
default on other bills before they stop paying for electricity,
said Tanguy Serra, president of Vivint Inc.’s solar unit. The
Provo, Utah-based home automation company operates security and
energy-management systems for homeowners and began installing
rooftop solar in October.

“Your home’s electricity is an absolute necessity that
comes ahead of everything else. Even if you’re giving up your
car, you’re still paying your power bill,” Serra said in an e-
mail. “Investing in solar securities is one of the least risky
investments you can make.”

To contact the reporter on this story:
Andrew Herndon in San Francisco at

To contact the editor responsible for this story:
Reed Landberg at

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