Due to the competitive nature of the application process and the relatively low prices in the NJ SREC market, we expect the commercial segments especially to see very tight margins.

Due to the competitive nature of the application process and the relatively low prices in the NJ SREC market, we expect the commercial segments especially to see very tight margins.

After two successful prior rounds, PSE&G launched their third Solar Loan program and began accepting applications for PV projects on October 31st. The first round of competitive solicitations will close on Tuesday, November 12th. Projects in PSE&G service territory that are eligible for net metering can receive a percentage of project costs upfront as a loan to be paid back with SRECs or cash during the life of the project. The program will accept 97.5MW in both residential and commercial projects. Sol Systems previously wrote about the program here.

Solar Loan Program III will differ from previous procurements in several ways. Unlike previous Solar Loan programs, the floor price per SREC will be determined by a competitive bid-in process. The program will also feature a ten year loan term, down from 15 years in previous rounds. It will not include a call option on SRECs, providing additional security for investors. The available capacity will also be divided into market segments (various types and capacities of residential and commercial projects), meaning increased diversity of project types in the program. The program applicants will now be responsible for administrative costs of the program as well, in the form of per kW fees. Bidders should account for these fees in their floor price.

Additionally, the program will not be accepting applications on a rolling basis as in years prior. Instead, about four to six competitive solicitations per year will award a predetermined capacity of contracts over the next two to three years. The first solicitation will close on November 12th and has the following available capacities:

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The interest rate for all projects is 11.179%. However, interest due on the loan can be paid back with SRECs, along with the loan principal. During the life of the loan, the higher of the SREC market price or previously determined floor price will go towards paying down the loan. Once the loan is paid, any remaining SRECs belong to the project owner, providing investors with some potential upside in out years.

Bids in the competitive solicitation will be ranked according to their bid-in floor price, given in multiples of $5.00. Bids sharing the same floor price will be again ranked according to the timestamp of their bid submittal. Capacity from undersubscribed segments will be reallocated to other segments. The official award will not be made until further review of financial information of the host customer and interconnection availability. PSE&G reserves the first priority lien position on the project equipment in all cases, and funds the loan upon completion of the project and all required inspections.

SREC floor prices in Solar Loan II ranged from $330 to $450/SREC; however, the New Jersey SREC market is seeing spot market pricing in the $130’s to 140’s, meaning floor prices for this program will likely be much lower than in years prior. In the PSE&G residential example given, a loan with an SREC floor price of $265 over the ten year period will cover 40% of the total system cost at a system cost of $4/W. However, due to the competitive nature of the application process and the relatively low prices in the NJ SREC market, we expect the commercial segments especially to see very tight margins. Developers looking to bid into the program or exploring alternative options in the SREC market are encouraged to contact our project finance team at finance@solsystemscompany.com or (888) 235-1538 ext. 2. Our team would be happy to discuss your project with you and assess financing opportunities.

About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the renewable energy asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has arranged financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals. For more information please visit www.solsystemscompany.com.

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