Solar securitizations have long been eyed as a financing alternative that can lower the weighted average cost of solar energy products for customers. It will also reduce exposure to developers.
Last week Clean Power Finance, Morgan Stanley unit MS Solar Solutions Corp., and Main Street Power Co. announced the creation of MySolar, which is a residential solar lease facility that will offer funding for up to $300 million in projects. Clean Power Finance said that this program is a step toward realizing the potential for the securitization of these assets.
"This is not a securitization deal," explained Kristian Hanelt, senior vice president of renewable capital markets at Clean Power Finance. "It is still a relatively bilateral transaction, although if we're talking about the benefits of securitization--packaging a portfolio of assets to sell to a bigger pool of investors — then this is a step in the right direction. We're starting to structure deals that will make that possible, and that's exciting."
The Clean Power Finance/Morgan Stanley deal involves both debt and equity investors. Typically the established players in the solar space such as SunRun and SolarCity use less debt in their finance deals, Hanelt explained.
Clean Power Finance is a platform business that markets and underwrites financial products. The company works more like a broker-style model than a principal-investing style model. The Morgan Stanley product gets marketed through Clean Power Finance's CPF Tools software to solar professional users who sell the product to end consumers.
Zions Energy Link, which is part of Zions Bancorp, is providing project level debt to the MySolar residential solar lease facility. However, the fact that it is syndicatedmeans that the bank is providing only a portion of the debt financing.
"There is an opportunity for other people to provide debt and you can have a structured bank transaction like what Zions did or someone could effectively take a securitization of those cash flows and also participate in that fund," said Nat Kreamer (pictured), CEO and a member of the board of directors of Clean Power Finance.
Kreamer's original idea to finance solar for consumers led him to co-found SunRun, which he led as the company’s president and COO. In 2007, he sold the first residential power purchase agreement or PPA in the U.S. and was instrumental in building the residential solar finance industry.
Clean Power Finance is also looking into bringing in tax investors into a project fund where the tax investor takes the tax and the consumer cash flow attributes, which can be effectively securitized.
"We would warehouse a certain number of transactions for a period of time so you can build up securitization to do an issuance, which looks like what happens in the mortgage and auto industries," Kreamer said.
Kreamer said the company has been approached by a large money-center bank, among others, on this warehousing concept.
"We are in a position to do what I describe because we have the warehousing capability," Kreamer said. "Our business model is not to be the long-term owner of these systems, but to be the person that markets, underwrites and services them. We can build up that volume and are happy to facilitate selling those interests into the capital markets."