Just Another Solar Deal, Or The Future Of Mid-Size Project Financing?

Posted on April 28, 2014
Posted By: Camilo Patrignani
Topic: Solar
 

These days, a $40 million dollar equity financing deal might not seem groundbreaking in America's power markets. But for the keen analyst of distributed solar energy, that same investment may just herald a shift toward the future of project financing.

Just another solar investment, right? Not really. While the boom in distributed solar energy generation is one of the hottest topics in today's energy economy, most large institutional investors haven't traditionally been interested in medium-sized solar installations, and as such, are just now getting into the game.

This trend is especially important considering clean energy investment fell for the second year in a row in 2013, down 11 percent after a similar 10 percent decline in 2012, according to Bloomberg New Energy Finance. While investor appetites in solar are growing, good investment opportunities can often be hard to find, meaning dollars are scarcer and thus more important for solar developers.

Big investors typically want to invest in big projects and standardized contracts, creating difficulty financing distributed solar. That problem hasn't played out in the rooftop residential market, where developers like SolarCity have installed record amounts of solar panels because all contracts are standard and investors only need to review a diversified pool of credit scores. The same pattern is true for the large utility-scale market where companies like SunEdison have been able to construct massive solar farms and investors only need to review one set of contracts.

But that problem has vexed mid-sized developers who can often fund project-planning phases on their own but rely on securing long-term investors after projects are fully permitted and construction can begin. Individual arrays aren't large enough to attract large investors, but project pools can involve many different contracts.

Without investment to cover the long period of exposure between when the first rack goes in to when the system switches on, potential projects pile up but result in far too few interconnections to fulfill America's solar energy promise.

Our approach to this problem may seem simple, but it's been a success: Package together multiple solar projects in states with favorable renewable polices to create the scale and standardization required for big investors to take notice.

Think back to that 13MW project pool I mentioned earlier - it was sizable enough to attract a major institutional investor and secure sufficient equity financing to fund an initial project pool while empowering us to look ahead to an aggressive series of additional (and larger) project pools in 2014.

Now combine equity financing with turnkey capability created by partnering with leading solar developers and construction contractors through joint venture partnerships to handle every aspect of projects from engineering to procurement and construction through maintenance, and the reason for our optimism comes into focus.

By vertically integrating the solar development business, mid-sized developers can reach the scale needed to attract institutional investors, ensuring project financing through construction and interconnection, allowing power-purchase agreements to be put in place, and providing a positive return on investment that encourages additional investment.

 
 
Authored By:
Camilo Patrignani is CEO of Greenwood Energy, a wholly owned subsidiary of the Libra Group. He has a Bachelor of Business Administration and an MBA from the Wharton School of the University of Pennsylvania. Camilo oversees strategic direction for Greenwood renewable energy investments across North and Latin America, and brings over 20 years’ of project finance experience to this role. Prior to Greenwood, he was Vice President of Fortress Investment
 

Other Posts by: Camilo Patrignani

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