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April 1, 2015 | What Yieldcos, Securitizations and “Cheap” money mean to you
As the solar news is fill up with news of new financial vehicles acquiring solar (and now wind) projects with the promise of lower cost of capital. The headlines highlight the large portfolios and enormous projects that are taking advantage of the equity but how does this affect the solar industry as a whole is an open questions. But it the benefit of low cost of capital are not reserved to those that become the ultimate owner of solar assets – each of us can benefit.
At the Infocast conference in San Diego last November, panelists spanning developers, investors and lawyers discussed the topic of securitizations and yieldcos. The timing was ripe with the recent acquisition of First Wind by Sunedison and Terraform for $2.4 Billion dollars. Financial vehicles represented at the conference included Yieldcos, REITs, and companies seeking to securitize.
How can the individual solar developer and contractor benefit from these financial vehicles and what could investors be looking for in making the acquisition?
What else can you do for me?
In our view, financial vehicles are placing significant value on pipeline to manage the growth expectations of the vehicles in addition to the underlying project that may be looking for a takeout investor after construction or from existing owners. Pipeline is a solar buzzword that has many meanings, but from an investor’s perspective a pipeline is directly related to the developer standing behind it. A track record of success can be helpful in talking up the potential for new projects to come to reality.
Making a project bankable
In the U.S., making a project bankable means having a balance sheet to make a tax equity investor comfortable. Whether it comes through a bond or bank guarantee, the contractor/developer also has to create a comfort level for the investors with the warranty, which can also be accomplished by bringing an EPC contractor into the fold.
Investors tend to be averse to taking risk, but this aversion to risk continues to increase as the return on the capital drops. By putting the right development team in place with local knowledge and strong balance sheets, investors will start taking a look at what you are working on.
Getting the best return on your project
Selling a solar project is like selling a house. If it has a prime location and move in ready, buyers will pay the premium price. At the same time many people are willing to buy a pre-construction home from one of the few home builders that present an efficient path forward and warranty on the home once its built. Put yourself in the buyers shoes and make your solar project appealing to the lowest cost of capital in the market, whichever financial structure it may be.