FINANCE: Residential PACE on the Rise; Innovative Solar Financing

Posted by Dan Scripps on Jun 24, 2015 5:03:09 PM

By Dan Scripps


In 2010, the Federal Housing Finance Authority almost killed Property Assessed Clean Energy Programs (PACE) for residential properties. A lot can happen in five years, and what was once a program on the verge of foreclosure is now a booming market. Also, what a new financing model could mean for current solar consumers and producers.

Residential PACE Growing Rapidly, Now Larger than Commercial PACE

After years of frustration resulting from roadblocks from federal loan underwriters, the market for Property Assessed Clean Energy (PACE) financing for residential energy improvements is booming, and is now larger than the national commercial PACE market. Spurred by an innovative approach to using credit enhancements, residential PACE is now firmly established in California, with emerging markets in Florida, Georgia, Missouri, and New York. According to data from PACE Now, there have been more than 30,000 PACE-financed residential projects, totaling $626 million, compared to 330 commercial PACE projects, representing $112 million in investment.

One reason for the rapid growth in residential PACE is the ability to package individual loans into securitized financial products. Because there is less variability in residential loans in comparison to the more individualized loans in the commercial space, these residential loans are easier to bundle. California-based Renovate America, which oversees the Home Energy Renovation Opportunity (HERO) program, recently completed its third securitization of PACE bonds. The $240 million securitization, focused on advanced energy and water efficiency projects, follows Renovate America’s two previous deals, which funded more than $600 million in residential projects in California and helped residential PACE to overtake commercial PACE both in terms of number of projects and total deal flow.

Similarly, Ygrene Energy Fund recently partnered with the Golden State Finance Authority (formerly known as the California Home Finance Authority or CRHMFA Homebuyers Fund) to launch a statewide PACE financing program that allows any California city or county to immediately opt in to the PACE financing program, opening up PACE for all California residents interested in energy efficiency and water conservation upgrades.

Another Week, Another Innovation in Solar Financing

The pace of innovation in solar financing continues to accelerate, with additional market “firsts” helping to dramatically increase the availability of capital for solar deployment while driving down financing costs for borrowers.

First Solar and SunPower announced this week their plans to raise as much as $483 million through an initial public offering for their new 8point3 Energy Partners yieldco. The yieldco, the first jointly created investment vehicle of its type, will trade on the Nasdaq under the symbol CAFD. Corporate restructuring leading up to this IPO resulted in the first losses for SunPower and First Solar as the companies worked to construct more projects on balance sheet. 8point3 Energy Partners will initially house 432 MW of projects, as well as an additional 59 MW of residential solar projects on 5,900 customer homes, with revenue from the IPO helping to fund additional acquisitions and other expenses. Both First Solar and SunPower are AEE member companies. The yieldco market, which didn’t exist even 18 months ago, has dominated the market for advanced energy financings in 2015, representing $1.5 billion of the total $2.2 billion in advanced energy financing over the first quarter.

Another AEE member participating in this yieldco boom is SunEdison. Earlier this month, TerraForm Power Inc., a yieldco that was spun out of SunEdison in May 2014, announced plans to acquire 23 MW of solar capacity from Integrys Energy Group, Inc. at a cost of $45 million, plus an additional $10 million in assumed debt. At the same time, SunEdison is planning to raise $750 million in convertible debt, in part to finance a new business unit to be called TerraForm Global, Inc., as well as creating a warehouse facility for future acquisitions. 

Not content with previous efforts to securitize individual solar loans or the acquisition of the Common Assets crowdfunding platform, SolarCity (you guessed it – another AEE member) recently rolled out a number of first-of-their-kind financing initiatives. Last month, SolarCity announced the creation of a tax equity investment program with Bank of America Merrill Lynch, which is designed to lower transaction costs and enable investments in tranches as low as $20 million. This follows the closing earlier in the month of a $500 million financing aggregation facility with BofA Merrill Lynch, Credit Suisse and Deutsche Bank, the largest loan facility of its kind for distributed generation solar projects.  This revolving loan fund will allow for continuous refinancing through ongoing securitizations, further driving down the financing costs for additional deployment and generating additional funds that can be used to finance the installation of new systems. Finally, SolarCity announced at the end of April that it had activated a previously announced $1 billion fund that will be used to finance commercial solar energy and battery storage systems.

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