Solar securitization deals this year already exceed 2015 levels, white paper finds

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A new white paper titled The Solar Securitization Opportunity, published by renewable financing firm Marathon Capital LLC, has found that the number of solar securitization deals completed in 2016 already exceeds the value recorded in 2015, raising the possibility that such asset-backed debt deals will exceed the records seen in 2014.

The white paper suggests that weakening macro credit conditions may be the reason for an increase in solar securitization deals, but adds that the recent Nevada government’s decision on net metering may ultimately serve to "increase perceived policy risk" for such deals.

The analysis showed that some $235 million in solar asset-backed security (ABS) deals has so far been raised, besting last year’s total of just $234 million. Leading the charge is U.S. residential rooftop solar installer SolarCity, which has sold $235 million in solar-power bonds already in 2016, and thus accounts for all movement so far in the securitization space.

Contrasted to last year, when $234 million across the entire industry was raised, and the signs point to a re-emergence of the volumeof debt deal common in 2014, when SolarCity led and, the following year, Sunrun embraced securitization deals.

Marathon CEO Ted Brandt told Bloomberg that there is growing interest among solar developer for tapping into the ABS market, adding that it was "highly likely" that issuances will grow this year. "There are a number of existing and new issuers that are actively pursuing securitization strategies," he said.

Sunrun’s securitization deal last year was valued at $111 million and was the first non-SolarCity ABS deal in the solar market. Similar firms operating in the residential leasing solar space are expected to step up their interest in such deals, Marathon expects, particularly Sungevity, Sunnova Energy, Spruce Finance and Vivint Solar.

"The universe of distributed solar financier that can steadily deploy a large volume of solar systems is growing but still relatively small," the report said. "Securitization first movers SolarCity and Sunrun both have proven ability to deploy over 35 MW – the approximate minimum securitization size – every quarter."

The white paper expects that the ITC extension will boost distributed solar to around 6 GW of annual deployment by 2020, outlining how the “growing pains” of the securitization sector will be overcome as macro credit conditions weaken, thus paving the way for increased solar securitization yields.

"In the long-term, solar securitizations will generally have a higher cost of capital and lower advance rate than traditional securitized asset classes due to greater expected loss given default, even after the asset class develops a proven track record," said the Marathon white paper. However, it adds, achievable action over time should serve to reduce current cost of capital and make securitization of solar assets more efficient.

Currently, solar securitization market share in the U.S. residential sector – in terms of MW installed – stands at just 7%.