NREL finds both opportunities and barriers to securitization as a source of capital for solar PV

SolarCity's successful securitization of distributed PV assets has sparked interest in the wider use of securitization. Image: SolarCity
SolarCity's successful securitization of distributed PV assets has sparked interest in the wider use of securitization. Image: SolarCity

The U.S. Department of Energy's National Renewable Energy Laboratories (NREL, Golden, Colorado, U.S.) has released a report which finds that the opportunities to access capital through securitization are compelling for the U.S. solar photovoltaic (PV) industry, but that barriers still remain to widespread adoption.

In November 2013 SolarCity Corp. (San Mateo, California, U.S.) completed the industry's first securitization of distributed PV assets. This led to speculation that this move could open the door to wider use of securitization as a means to obtain new capital.

“The Potential of Securitization in Solar PV Finance” looks at this opportunity in light of the needs of the PV industry to obtain new sources of low-cost capital as incentives decline.

 

Multiple challenges identified

The report finds several challenges, including limited availability of performance data and credit metrics, lack of standardization in power purchase agreements and leases, short operating histories and low portfolio volumes, as well as technology risks.

“Harmonizing the relationship of the tax equity tranche of the capital stack and the debt sourced from a securitization transaction is a challenge which will require some financial engineering,” notes the report.

“Standardization is another barrier: the solar industry currently abounds in a diverse set of asset contracts, installation and operations and maintenance (O&M) practices, and other features of business that make the task of pooling assets (the precursor to securitization) difficult.”

 

Barriers can be overcome in time

It also finds that these difficulties may be overcome in time, following initial securitizations and risk mitigation efforts. NREL finds that this is not unlike the path taken by other industries.

“However, many securitization markets, including mortgages, required innovation and time to achieve viability, and these hurdles may be more symptomatic of growing pains than of permanent barriers.”

 

2014-02-17 | Courtesy: NREL; Image: SolarCity | solarserver.com © Heindl Server GmbH

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