US solar financing on the brink of transformation

The evolution towards a broader investor base will help maintain growth for US solar deployment

New York, 24 May 2012 – Financing of US solar projects is in the midst of a transformation, with new business models, new investors, and new financing vehicles gaining sway, according to new research by specialist research firm Bloomberg New Energy Finance commissioned by Reznick Group.


US solar projects have historically been bankrolled by some combination of energy sector players, banks, and the federal government, but the landscape is rapidly changing. New business models are emerging with an emphasis on third-party financing. New investors, including institutional players, are entering. And new financing vehicles such as project bonds and other securities are being assembled to tap the broader capital markets.

Bloomberg New Energy Finance, the leading provider of news, data, and analysis on clean energy, water, power, and the carbon markets, has worked with Reznick Group, a national accounting, tax, and business advisory firm, to describe this ongoing evolution of US solar financing: where the market is today, where it is heading, and what's behind this important transition. The resulting report, "Re-imagining US solar financing", can be downloaded at http://www.bnef.com/WhitePapers/download/84.

The evolution towards a broader investor base will help maintain growth for US solar deployment. Asset financing for US photovoltaic (PV) projects has grown by a compound annual growth rate of 58% since 2004 and surged to a record $21.1bn in 2011, fuelled by the one-year extension of the Department of Treasury cash grant programme. Funding the next nine years of growth (2012-20) for US PV deployment will require about $6.9bn annually on average.

Two factors will drive the evolution. First, traditional players are scaling back their participation. Constrained by regulatory requirements and by the continent's financial crisis, eurozone banks are offering loans of shorter duration and with slightly wider spreads. In the US, a key Department of Energy loan guarantee programme lapsed in 2011 making less low-priced capital available for large-scale projects.

Second, thanks to the continuing low-interest rate environment, non-traditional investors are becoming more interested, lured by the risk/return profiles of solar projects that employ well proven PV technology. Motivated by attractive yields and the examples set by Chevron and Google, US corporations are eyeing forays into tax equity. Pension funds and insurance companies are willing to give solar projects a serious look in the wake of the successful bond issuance for a solar project owned by a Warren Buffett-backed utility. The past year has seen a crescendo of conversations around financing vehicles that draw on the capital markets, such as solar-backed securitisation, master limited partnerships (MLPs), structures resembling real estate investment trusts (REITs) and publicly listed solar ownership funds.

In parallel, new business models for deployment of solar have flourished, including variations of third-party financing structures which enable customers to enjoy the benefit of local systems at little or no upfront cost. These models have the potential to broaden substantially the universe of solar investors.

"Solar equipment prices have dropped by more than half since the start of 2011 but financing costs matter too," said Michel Di Capua, Head of Analysis, North America, at Bloomberg New Energy Finance in New York. "New financing vehicles and new investors across the solar project lifecycle – development, construction, commissioning, and then long-term operation of assets – will cause the costs of equity, debt, and potentially even tax equity to migrate down."

Policy could accelerate the transformation. Investors surveyed as part of this report seek stronger SREC programmes, new standards, more flexible tax credits, and sanctioned high-liquidity investment vehicles such as solar REITs.

"A greater understanding of project risk and return is driving new investors into the solar PV market," said Tim Kemper, Renewable Energy Practice Leader at Reznick Group. "However, investors still need to pay attention to tax and structuring issues as these are the factors that will often determine the viability of a project."

ABOUT BLOOMBERG NEW ENERGY FINANCE

Bloomberg New Energy Finance (BNEF) is the world's leading independent provider of news, data, research and analysis to decision makers in renewable energy, energy smart technologies, carbon markets, carbon capture and storage, and nuclear power. Bloomberg New Energy Finance has a staff of 200, based in London, Washington D.C., New York, Tokyo, Beijing, New Delhi, Singapore, Hong Kong, Sydney, Cape Town, Săo Paulo and Zurich.
Bloomberg New Energy Finance serves leading investors, corporates and governments around the world. Its Insight Services provide deep market analysis on wind, solar, bioenergy, geothermal, carbon capture and storage, smart grid, energy efficiency, and nuclear power. The group also offers Insight Services for each of the major emerging carbon markets: European, Global Kyoto, Australia, and the U.S., where it covers the planned regional markets as
well as potential federal initiatives and the voluntary carbon market. Bloomberg New Energy Finance's Industry
Intelligence Service provides access to the world's most reliable and comprehensive database of investors and
investments in clean energy and carbon. The News and Briefing Service is the leading global news service focusing
on clean energy investment. The group also undertakes applied research on behalf of clients and runs senior level
networking events.

New Energy Finance Limited was acquired by Bloomberg L.P. in December 2009, and its services and products are
now owned and distributed by Bloomberg Finance L.P., except that Bloomberg L.P. and its subsidiaries (BLP)
distribute these products in Argentina, Bermuda, China, India, Japan, and Korea. For more information on
Bloomberg New Energy Finance: http://www.bnef.com.

ABOUT REZNICK GROUP

Reznick Group is ranked among the top 20 accounting firms in the United States, providing accounting, tax and business advisory services to clients nationwide. In addition to other industries, Reznick Group offers a broad array of accounting, tax and business advisory services specific to the renewable energy sector - with services tailored to investors, infrastructure developers and producers of renewable energy power. For more information, visit: http://www.reznickgroup.com.

ABOUT BLOOMBERG

Bloomberg, the global business and financial information and news leader, gives influential decision makers a critical edge by connecting them to a dynamic network of information, people and ideas. The company's strength—delivering data, news and analytics through innovative technology, quickly and accurately—is at the core of the Bloomberg Professional service, which provides real time financial information to more than 300,000 subscribers globally. Bloomberg's enterprise solutions build on the company's core strength, leveraging technology to allow customers to access, integrate, distribute and manage data and information across organizations more efficiently and effectively. Through Bloomberg Law, Bloomberg Government and Bloomberg New Energy Finance, the company provides data, news and analytics to decision makers in industries beyond finance. And Bloomberg News, delivered through the Bloomberg Professional service, television, radio, mobile, the Internet and two magazines, Bloomberg Businessweek and Bloomberg Markets, covers the world with more than 2,300 news and multimedia professionals at 146 bureaus in 72 countries. Headquartered in New York, Bloomberg employs more than 13,000 people in 185 locations around the world.

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