This is an excerpt from the March 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
Trends in solar finance come and go. We saw the YieldCo boom, followed by the YieldCo bust, followed by YieldCo sales (see: Terraform and Brookfield, 8point3 Energy Partners and Capital Dynamics, NRG Yield and Global Infrastructure Partners, all very recent news). We saw a shortage of tax equity capital – the bottleneck of project finance for years – recently give way to project undersupply, driven by the ITC “hangover” and challenges to PURPA implementation across a number of states. Finally, the latest trend we’ve seen has been the “wall of money” cresting over the industry. Primarily, this has taken the form of long-term ownership dollars chasing assets to structure and hold for the long term. Frankly, there is more money in the space chasing projects than ever before. But what differentiates these funds, and what makes a financing partner a competitive partner?
Last month, Sol Systems launched our new fund, called Helios, in partnership with Nationwide Insurance, with a mandate to acquire, develop, build, and own utility and commercial solar assets across the U.S. with a first-year target of approximately 330MW of capacity. But while there may not be a shortage of interest in the solar asset class, we do recognize a lack of differentiated dollars, primarily on asset valuation and investment timing, available to project developers aiming to sell. Through Helios, we see an opportunity to provide differentiated acquisition capital for portfolios starting at 50MW and larger.
Not all capital is created equal. It’s true that many investors now entering the solar investment space are doing so with return expectations of circa, say, 2013. But, with billions of dollars of proven investments out the door, solar is no longer by any stretch of the imagination a speculative asset class. However, even those investors with appropriate return hurdles do not value assets equally. Post-PPA and useful life assumptions are two examples where the unevolved investor (one that values only contracted revenue, unreasonably discounts post-PPA revenue, or cuts short the project’s useful life) will fail to compete.
Another important factor is the investor’s own internal ability to value depreciation. Helios is a unique source of capital in part because it is tax advantaged. Even if a sponsor can raise tax equity, they are still left with a material amount of depreciation that cannot be absorbed by their tax partner. Nationwide as a tax efficient investor is able to arrive at a lower comparative cost of capital by valuing these benefits, and as an experienced solar investor in partnership with Sol Systems, is able to appropriately evaluate risks in valuing solar assets.
Depth of knowledge and experience in this asset class are also critical to make investments in the asset class, especially earlier in the development cycle Sophisticated investors, like Helios , will underwrite assets and advance capital for projects once they reache certain development milestones, like interconnection or PPA deposits, and well before NTP is achieved. This helps developers bridge the painful development capital gap, and milestone acquisition payments allow developer-EPCs to build assets without self-funding construction. Also, to the extent you are discussing your portfolio with an investor you should understand the timeline of their investment thesis. A multi-year fund, like Helios, is able to look past the (ever fast approaching) year-end cliff, investing in multi-year portfolios and offering execution certainty for developers looking to plan past the current development crunch.
Connect with Us
Are you a developer with a project that can benefit from financing from Helios? We are investing in multiple geographies, and are currently reviewing pipeline in Oregon, North Carolina, South Carolina, Tennessee, Minnesota, Rhode Island, and PJM, and are also interested in New York, Illinois, Michigan, Massachusetts, and Texas. Projects do not need to place in service in 2018. For additional questions or to submit project pipeline for review, please contact Jessie Robbins, Director of Structured Finance, at email@example.com.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.