With its excellent renewable policy, California leads the nation in
solar. Over the years both the Renewable Portfolio Standard and the
California Solar Initiative drove utility scale and residential solar
deployment. But without the same drivers pushing commercial and
industrial buildings to go solar, California’s offices, warehouses,
hospitals, farms, factories, universities, hotels and restaurants have
lagged behind.
Now that appears to be turning around fast. A growing number of
leaders in the solar industry see a very bright future for Commercial
and Industrial (C&I) solar, beginning in 2015. A lot has to do with
the introduction of PACE financing for C&I solar. Vivint Solar recently unveiled $150 million in financing for the
C&I solar market together with Sungevity. Vivint, currently valued
at $1 billion, is already a major player in residential solar. Through
its parent company Blackstone Group, Vivint obtained an inside track to
almost $100 billion worth of real estate assets in a vast assortment of
C&I properties. And with its $2 billion acquisition in July by SunEdison, it is clear that this market is valued.
In April, SolarCity, America's largest installer nationally, launched
a $1 billion fund for the C&I market. In the last 45 days, Figtree
Financing has funded nearly $4.5 million in projects using commercial
PACE (Property Assessed Clean Energy) financing. It is a potentially huge market. Taken together, C&I energy users
account for more than half of U.S. electricity consumption. Commercial
users like big box stores and office buildings use 19 percent, and
industrial users like farms and factories make up 33 percent of US
electricity consumption for a 52 percent total.
A Perfect Storm
Developer experience, falling solar prices and increased
environmental understanding all play a part in the breakthrough. The
utility-scale developer NextEra Energy has identified non-utility buyers of renewable energy as a “big piece of our business over the next three to five years,” according to development SVP Mike O’Sullivan. Developer experience with the stability of utility solar PPAs is
increasing confidence. NRG Renew owns and operates more than 4.5 GW of
solar and wind projects, and since 2012 has been selling power from its
20 MW Blythe project to SCE in a 20 year PPA.
"Energy prices from solar energy like our Blythe project have made it
easier to enter into long term off-take agreements with companies like
Cisco," said Tom Doyle, President of NRG Renew, which has just announced
it will supply CISCO energy from a dedicated 20 MW PV project at a set
price in a PPA for 20 years.
Better understanding of the financial and environmental value of solar by large corporate bodies led by the likes of Apple, Google, Walmart and Cisco helps too, leading by example. "We’re continually seeing more companies set sustainability goals
because they understand the business and environmental value in doing
so," said Doyle.
Falling solar price is another factor.
Not only are solar prices now competitive with today’s retail prices,
but developers can lock them in at current rates for a typical contract
period around 20 years. By contrast, utility prices are unpredictable,
and rise over time. But the biggest driver is the newly available PACE financing in California.
PACE Extended to C&I in California
PACE financing has been available to residential homeowners
in many cities and counties in California since Berkeley First
introduced it in 2008. The municipality advances the local homeowner the
money to install a solar system. The property owner pays it back via a
property tax lien over time. By incorporating the billing into property tax bills, low-money down
long-term low interest rates can be available to homeowners with less
than perfect credit. With upfront costs spread out over the years of
use, solar energy is cheaper than retail utility rates.
Now, PACE funding in California
has been extended to C&I property owners, operating through
California's PACE program administered by Renew Financial. The agency
that runs the program issues low-interest rate municipal bonds and
advances the proceeds to the property owner to pay for the solar system.
Solar companies have been quick to see the benefit. Figtree Financing’s Commercial PACE Program has set aside $60 million
in committed capital for clean energy upgrades for a very diverse range
of commercial users ranging from $50,000 to $1.5 million in size. It
has seen a 10-fold increase in project activity in 2015.
Two Florida-based firms, Conergy and Demeter Power Group have joined
forces to leverage PACE financing by combining it with third-party
ownership, an innovation funded with an incubator award from the DOE SunShot Initiative. Their estimate is that ninety percent of commercial property owners cannot get a solar project financed.
PACE traditionally has been used by building owners to pay for
improvements in the form of a debt investment, like having a loan. But
by combining third-party ownership with the PACE model, Conergy and
Demeter have transformed it into a form of equity finance.
As previously described by Ed Feo, managing director of USRG
Renewable Finance, “you could take the proceeds received under a PACE
funding and use them to prepay a lease or power contract and combine
low-cost debt with the benefits of third-party ownership of the asset
itself. The structures are essentially leveraged tax equity deals. The
cost of capital is lower if you can put tax equity and debt together.”
Ultimately, Conergy is the investor and owner of the project. Because
PACE is backed by property value, the credit analysis is simplified,
making this hybrid model workable for the hard-to-finance small
commercial market. Because of the certainty of property tax repayment, under PACE, solar
developers are better able to finance C&I projects. Because both
the energy-producing property and the property tax payments
automatically transfer to any new owner when the building sells.
This means potentially lower transaction costs, according to Mary
Kathryn Lynch, director of strategic initiatives at Renewable Funding.
Until now, the C&I market has been harder to finance than either the
residential or the utility-scale market.
State mandates have forced California utilities to increase the
percentage of renewable energy, and utilities are creditworthy
off-takers, so financing utility-scale solar PPAs has been relatively
straightforward. Similarly, California homeowners have long been driven
to solar by high prices and between third-party ownership of leases and
PPAs, loans and PACE, it has been relatively easy to supply this
residential market too.
As a result, by 2012, utility-scale solar, and by 2014, residential
solar had eclipsed the C&I market. But now utility-scale experienced
developers armed with cheaper solar panels are connecting with more
environmentally responsible businesses who for the first time have
access to PACE financing with third-party leases. C&I solar may soon
become as easy to finance as either residential or utility-scale sola
http://www.renewableenergyworld.com/articles/2015/07/pace-finance-opening-doors-for-c-i-solar-in-california.html
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