SolarCity is always looking for new ways to raise funds for financing
rooftop solar projects. Its latest effort is aiming at new and mid-size
investors who don’t want to pay the conventional high transaction fees
to participate, said the company’s CEO, Lyndon Rive.
Through a new program created by Bank of America BAC -1.02%
Merrill Lynch, investors who can only pony up, say, $20-$25 million,
can take part in project deployment funds for SolarCity and pay tens of
thousands of dollars in transaction fees rather than the usual amount
that hovers around $1 million, Rive said.
“It’s dramatically less for an investor. What we have done is we
standardize the terms of transactions to hopefully expand the market,”
he told me. “This will probably not open the flood gate, but slowly we
can build it up to $1 billion.”
That $1 billion is Rive’s goal, to be reached by 2017, for sourcing
money from what he calls Fortune 500 or 1000 companies and regional
banks that have expressed an interest in tax equity funds, which allow
investors to take the 30% federal investment tax credit. The tax credit
has been key for boosting the solar market growth because project owners
can use it to offset 30% of the cost of installing solar projects, from
residential to utility scale.
But transaction fees can get expensive regardless of how much money
investors put in each fund, especially if they are new to solar and
don’t have the internal experts to set up their own funds. For one
thing, they usually need more time to learn the ins and outs of the
market from the accountants and lawyers, and that racks up the cost.
SolarCity has grown to become the No. 1 residential solar installer in the country partly because it’s good at raising money. It was the first to securitize rooftop solar assets. It began selling bonds directly
last year and required a minimum of only $1,000 to start. It’s also
been raising funds in hundreds of millions of dollars from banks and
corporate investors, and those fund sizes have grown significantly in
recent years, including $300 million from a recent round from Google GOOGL -1.52% and a $350 million fund from JP Morgan announced in January.
But the cost of capital for solar companies also has gone up
significantly. Back in 2007-08, when interest rates were hovering around
4%, a tax equity fund could yield a return of 5-7%. Now, with interest
rates around 1%, a tax equity fund can produce 8-10% returns because
demand has exceeded supply as the solar market grows, Rive said. That
creates more competition among solar companies for the limited tax
equity dollars.
SolarCity hopes to lower that cost of capital by working with Bank of
America to reach out to new investors. The $20-$25 million investment
range used in SolarCity’s press release about this new effort is a
reference point, not a limitation. An investor can fork over a few
million dollars if the cost-benefit analysis pencils out.
Bank of America already has closed the first fund through this new
initiative and raised $200 million, which includes some of its own
money. The $200 million will fund residential installations over the
next 12 months. SolarCity generates revenues by signing long-term leases
or power purchase agreements with home and business owners, who pay a
monthly fee for the energy from their rooftop systems. Rive said he hopes to convince other banks to create similar programs.
http://www.forbes.com/sites/uciliawang/2015/05/28/solarcity-teams-up-with-bank-of-america-to-reel-in-tax-equity-investors/2/?ss=energy