While Clean Power Finance and others are focused on residential solar financing, Mercatus (formerly SCS Renewables) has turned its attention to what it calls “the next big growth opportunity”: securitization funding for commercial and industrial solar projects.
The software solutions provider for the energy finance industry on Monday announced that it has raised more than $2 million for the introduction of a credit score for projects in the energy industry.
Its new origination and syndication management platform could ease the financing costs of energy projects by up to 50% and provides a bridge for more than $35 trillion of institutional investment into commercial and industrial by allowing these projects to be pooled.
The platform is based on four years of due diligence and transactions with 40 of the top U.S. financial organizations. Developers load project information onto the Mercatus platform and 48 hours later, the project receives the commercial and industrial industry’s first FICO score equivalent, which is visible to developers and investors alike.
The Mercatus platform is based on a proprietary appraisal methodology that rates eight key categories. Developers now have a transparent view of what makes a project financeable, while energy investors looking to find the best projects first depend on the Mercatus FICO-like score to accelerate decision-making and reduce diligence inefficiencies for optimal aggregation and syndication.
“Over the last six months banks have been tiptoeing the sidelines on trying to figure out how to intersect the commercial and industrial (C&I)segment which is becoming the sweet spot in solar,” said Haresh Patel, CEO of Mercatus.
Securitization is a must, said Patel, for this capital intensive business because it allows developers to access financing at a potentially lower cost of capital.
But there are several challenges that banks face in trying to securitize these projects. One challenge the industry has faced is how to diligence these projects in a way that doesn’t kill the economics of doing a project.
Unlike the residential side, commercial industrial projects had no borrower scoring and rating mechanism, said Patel, “so it’s harder to assess credit risk for these loans.”
The Mercatus FICO-like scoring is a first step towards enabling both banks and investors to more rapidly make investment decisions and get more projects on the ground and reduce diligence costs.
“What it takes the banks to do first level diligence for a portfolio of projects in 45-60 days, Mercatus can do in under a week; so we really caught their interest because they are trying to figure out how to deploy capital into this sector and the only way to do this is lower diligence cost and put their money to work in an aggregate pool of like projects effectively,” said Patel.
“We are critical enabler to really reducing deal friction and diligence costs and create the ability to aggregate these portfolios more rapidly at a very low cost.”
Another challenge on the commercial and industrial side of the equation is that there hasn’t really been any standardization of project contracts, which makes it harder to pool projects for cost effective financing like securitization.
“When we put into our appraisal methodology at least now we make every project look the same,” said Patel.