SolarCity’s recent securitization deal may have been small in size but it’s done big things for the future of the asset class.
Haresh Patel, CEO of Mercatus, the software solutions provider for the energy finance industry, believes securitization is likely to feature as a key financing alternative to fund commercial solar projects as manufacturers look to move away from the government subsidized, investment tax credit. The ITC is a 30% tax credit for solar systems on residential and commercial properties, set to be reduced in 2016.
Patel, speaking today at S&P Capital’s webcast on Commercial Solar Financing Trends, said that the industry is in year “four or five of a 10-year cycle.”
“The bubble burst on the hardware side ten years ago but it’s been constructive because it brought the coast of panel prices down,” said Patel.
To be sure, in the last four years the price of solar installation has fallen to $2 from $4 per watt, according Patel. At the same time the cost of solar energy has also maintained its competitiveness, even as the cost of natural gas prices have dropped.
Yet the drop in prices for the consumer hasn’t been matched by a decline in the “cost of money” for manufacturers.
Securitization is one solution that manufacturers are looking to bring in the liquidity that is missing in the market today. Patel said that even a 100 basis point reduction in the cost of money for these manufacturers result in significant savings in the cost of funding solar projects.
“The SolarCity securitization opened up the market for significant activity and we will see more securitizations over the next 3 to 4 months,” said Patel.