As many have hoped and predicted, it appears that competition among financiers is driving down required solar project return hurdles for many investors. Market clearing prices for projects indicate that investor hurdle rates for financeable large commercial and small utility projects have dropped 100-200 basis points (1-2%) in the last six months. There are a number of reasons this is starting to happen.
To begin, the cost of capital is getting more competitive as more capital rushes into the solar space. More investors are chasing deals, and by the basic function of supply and demand, increased supply means lower prices, or in this case – lower project return hurdles.
Debt is also becoming more plentiful as new debt providers have emerged (including Sol Systems and its partner Hannon Armstrong). This is making debt more affordable, and many of these debt options have longer tenors. For example, our $100 million debt fund accommodates term loans with 20-year tenors.
Finally, financing and overall transaction costs are one of the areas where significant solar cost reductions are still possible. We expect financing costs will continue to decrease as new capital pours into solar, more repeat deals occur, and as the industry becomes more mature and experienced. These changes are leading to some staggering projections for solar costs, and a future where solar goes head to head with more traditional fuels, like natural gas and coal.
About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.