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The Real Impact Of Loan Guarantees: ‘Solar Is Now Bankable’ And ‘Becoming Part Of A Much Broader Capital Market’

By Stephen Lacey

"The Real Impact Of Loan Guarantees: ‘Solar Is Now Bankable’ And ‘Becoming Part Of A Much Broader Capital Market’"

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With panel prices hitting record lows and performance of projects steadily improving, solar photovoltaics have become increasingly attractive to large investors. Investment in solar has surged to unprecedented levels due to interest from large Wall Street banks, investors like Warren Buffett, and technology firms like Google.

In 2011, the solar PV industry brought in $93 billion in revenues globally, raising $8 billion in corporate equity and debt. That’s a 12% increase over 2010, according to NPD Solarbuzz.

In the U.S., the value of solar PV installations grew from $5 billion in 2010 to $8.4 billion in 2011, according to analysis from GTM Research. Much of that increase came from the installation of large projects. Last year, there were 28 individual projects that amounted to more than 10 MW a piece, up from only two in 2009.

Two major factors drove this surge in U.S. investment. One was the 1603 grant program, which replaced tax credits, thus making it easier and cheaper to finance projects. Congress allowed that incentive to expire at the end of last year.

The other was the loan guarantee program, a tool that became politicized after the high-profile bankruptcy of the solar manufacturer Solyndra and the failure of a few other clean energy companies. Although the loan guarantee program is expected to cost taxpayers $2 billion less than originally budgeted for, some political leaders have latched onto these bankruptcies and falsely claimed that they hurt clean energy investment.

Trying to match his party’s huffing and puffing over Solyndra on the campaign trail this winter, Republican Presidential Candidate Mitt Romney bizarrely claimed the loan guarantee program stalled investments in solar: “instead of encouraging solar development, the Obama administration hurt it.”

Actually, the U.S. solar industry grew 109% last year — with a record 61,000 systems installed around the country.

And today, Congressman Darrell Issa, chairman of the House Oversight and Government Reform Committee, released a report claiming that the loan guarantee program “robbed taxpayers of genuine investment toward renewable energy.”

Again, experience in the field — particularly in solar, which has been a major focus of Congressional attacks — simply doesn’t back up that conclusion. Not only did the loan guarantee directly help developers attract private capital for first-of-a-kind solar projects during the economic downturn, it also had an indirect impact on others.

For example, the due diligence process helped bring in a $1 billion investment from Bank of America for the largest residential solar project in the history of the U.S. The CEO of the solar company deploying the project said that without the due diligence process that helped attract private lenders “we would not have been able to make the economics of this project work.”

The same goes for the 550-MW Topaz project, a thin-film solar field being built in central California. The company originally building the project, First Solar, couldn’t secure a loan guarantee after moving through the approval process. But just two months later, the company was able to entice Warren Buffett’s MidAmerican Energy to invest in the $2.4 billion project.

“This is a vote for renewable energy. It is not a bet,” said MidAmerican CEO Greg Abel.

When MidAmerican issued a bond last month in order to finance the project, it was oversubscribed by $400 million. One analyst said the interest from investors “illustrates the deep and attractive source of financing available in the bond market to fund the construction of renewable-energy projects.”

But this is a relatively new and growing phenomenon. As project developers told Business Week in a recent profile of U.S. solar investment, the loan guarantee program was an important driver in getting the industry to where it is today:

In 2009, solar technology was so unfamiliar that few banks would back projects that required billions in upfront investment and wouldn’t begin producing revenue for years, Klepper said. The biggest financiers for the industry that year were Madrid- based Santander, HSH Nordbank AG of Hamburg and Banco Bilbao Vizcaya Argentaria SA of Bilbao, Spain, New Energy Finance said.

That year, the U.S. Energy Department began funding a program to guarantee loans for solar farms and other renewable energy projects that supported almost $35 billion in financing before winding down in September.

The government’s endorsement assuaged investors’ concerns and built up a bigger community of people who understand how to make money from solar deals, said Arno Harris, chief executive officer of Sharp Corp.’s renewable power development unit Recurrent Energy.

“Solar is now bankable,” Harris said. “When solar was perceived as more risky it required a premium,” and now it’s “becoming part of a much broader capital market.”

One need only look at the returns for these long-term, stable investments to see why interest is surging. Investors want bonds that are as safe as Treasuries, but that offer a higher return. With the boost that the stimulus package provided solar through the financial collapse, large-scale projects have become more attractive to a more diverse range of financiers. Again from Business Week:

“After tax, you’re looking at returns in the 10 percent to 15 percent range” for solar projects, said Dan Reicher, executive director of Stanford University’s center for energy policy and finance in California. “The beauty of solar is once you make the capital investment, you’ve got free fuel and very low operating costs.”

The long-term nature of solar power-purchase deals make them similar to some bonds. And because a solar farm is a tangible asset, these investments also function much like those for infrastructure projects, with cash flows comparable to toll roads, bridges or pipelines, said Stefan Heck, a director at McKinsey & Co. in New York who leads their clean-tech work.

Since the “scandal” over the Solyndra loan guarantee hasn’t materialized, Darrell Issa and others are now making the preposterous claim that the program hurt investment in renewables. Clearly, he hasn’t talked to investors or people representing the business community.

Once again, there’s an enormous disconnect between what’s actually happening on the ground in clean energy and political perceptions in Washington.

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One Response to The Real Impact Of Loan Guarantees: ‘Solar Is Now Bankable’ And ‘Becoming Part Of A Much Broader Capital Market’

  1. Tom King says:

    One of the issues that most fascinates me is how the denier culture will unwind their collection of undefendable positions. The long awaited competitiveness of solar is a great example. After years of disparaging and discouraging renewable energy, what can the denier crowd say now?

    And while I acknowledge that lots of people through the ages have been proven wrong on all sorts of issues, I suspect that there has never been such a large collection of “speculative” issues that are going to be simultaneously resolved to the benefit of one world view and detriment of another.