Deals last week involving Sol Systems-Hannon Armstrong and Yingli-Sailing Capital added to the stream of recent solar capital, bringing in a total of $260 million.
The deals reinforced increasing chatter in the industry (led by SunEdison founder Jigar Shah) that there is now more money seeking projects than there are bankable projects to invest in.
But the situation is more nuanced than that, according to Sol Systems CEO Yuri Horwitz.
Sol Systems and Hannon Armstrong Sustainable Infrastructure Capital (HASI) will work together to put $100 million of HASI construction and term debt funds into financing for commercial and industrial-scale distributed solar projects.
Yingli Green Energy and China’s Sailing Capital International investment fund will together put $160 million into Yingli solar projects in China.
There are now more investors with cash seeking projects, according to Horwitz. But there still is not enough tax equity and construction and term debt financing available for bankable renewables projects.
While there is a distinct lending class for utility-scale solar and wind, there are not that many lenders for commercial and industrial-scale distributed generation, which most people agree is the future of solar, Horwitz said.
Debt can be one of the most challenging pieces to secure in the capital stack, as Sol Systems' Natacha Kiler recently explained, because banks that lend to renewables projects tend to consider commercial and industrial projects between 200 kilowatts and 20 megawatts to be too small. Furthermore, regional banks have limits on investment size and tenor, and local banks often don’t have the experience with solar to get past perceived risks.
“The HASI debt funding is the magic,” Horwitz said. “We deployed $40 million in tax equity last year. That translates to $100 million in capex invested in solar development deals,” he continued. With the HASI ten-year to seventeen-year term debt funding, Sol Systems can provide developers with both of the two less accessible parts of the financing equation. As a result, Horwitz said, “we will deploy between $70 million and $100 million in tax equity this year. That is about $250 million in solar deals.”
Structured financing for solar projects that uses the three inflows of capital, cash, tax equity, and debt enables developers to hold ownership of their projects and build portfolios, according to Horwitz. “What we are trying to do is reduce transaction costs through working with different investors and help developers optimize the capital stack and minimize the cost of capital.”
The investment in Yingli Green Energy is Sailing Capital’s first venture into renewables. "Renewable energy is emerging as a strategic industry in China and around the world,” said James Xiaodong Liu, Sailing Capital fund management CEO. “The PV segment in particular has great prospects.”
The $160 million fund will go to Yingli Green Energy utility-scale and distributed generation projects.
Yingli Green will put up 51 percent, or $82 million, and Sailing Capital will provide the balance. The investments will be entirely directed at the company’s approximately 1,000-megawatt PV project pipeline in China, according to a Yingli U.S. spokesperson.
With this sizable capital infusion, construction of between 400 megawatts and 600 megawatts is expected to be completed by the end of 2014, mostly in Q3 and Q4.