Via Forbes, an article discussing the trend towards bundling solar leases into an asset-backed security:
“…When solar entrepreneur Edward Fenster looks across the roofs of photo voltaic panels his company has installed on thousands of homes, he sees not just a source of clean green electricity but also security. An asset-backed security, that is.
Fenster is chief executive of SunRun, a San Francisco-based solar startup that leases rooftop photovoltaic arrays to homeowners who want to avoid the $30,000 or so upfront cost of going solar. Instead they make monthly payments over a 20-year contract, and SunRun owns and maintains the solar panels.
Now Fenster is leading the charge to bundle those residential solar leases into securities that can be sold to pension funds, insurance companies and other institutions looking for long-term investments that offer a steady cash flow.
Hmm, where have we heard that before?
But quicker than you can say subprime solar, Fenster launches into a well-honed spiel. “The collective credit of 10,000 homeowners is better than a utility,” he claims, noting that SunRun signs leases only with customers that have high credit scores. “It just makes for a much more efficient market. It benefits consumers because we’re able to raise capital at a lower cost and offer power at a lower cost.”
Maybe. Rating agencies are gun-shy about any new security, given their roles in the subprime mortgage crisis. The solar firms are but a few years old, and the technology, while proven, has yet to sit on many roofs for 20 years. That makes solar securities a bigger risk that will initially command a premium to compensate investors.
“It all hinges on the future value of these assets,” says Mac Irvin, chief financial officer for Sungevity, an Oakland, Calif. solar startup. “If it’s a Ford Taurus or a GE locomotive and you want to know what its value will be ten years from now, you can look it up in a book. That’s not yet the case with solar.”
Leasing solar arrays to homeowners has exploded over the past two years and represents, for example, 80% of rival SolarCity’s 15,000 installations. Banks–and most recently Google–have created so-called tax equity funds to finance those leases, in which investors get to pocket a 30% federal tax break for renewable energy projects. But that subsidy is set to sunset in coming years, hence the search for cheaper sources of financing.
Asset-backed securities have worked fine with financing things like auto loans and equipment leasing, notes New York securities lawyer Chris DiAngelo. Look for the first solar one by early next year.”
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