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Solar industry leaders debate the hot issues
focus:Interview | SPI roundtable, Part II
Many industry observers expect there will be sufficient tax equity and straight debt financing available for viable solar projects. The only question then becomes: How do you get the equipment installed? Image courtesy of Shutterstock.
Solar industry leaders debate the hot issues
I
N PART II of this feature, solar industry experts discuss the nuances of solar project financing, the availability of capital, and the impact of duties on some solar module imports. (Part I appeared in the January/February edition of REFocus.)
In the first installment of this roundtable discussions, recapped from SPI 2014 in Las Vegas), executives representing the solar electricity industry1 shared their viewpoints on a range of issues, including solar capacity generation, resource planning, and innovations in storage and smart metering. Following are excerpts of the second portion of that roundtable discussion:
Question: Are any of the developers on the panel finding it hard to get capital right now? Michael Silvestrini (Greenskies): No. Right now it feels as though there’s a lot of capital for this type of product. It’s tried-and-true technology, so a lot of the previous hurdles
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March/April 2015 | Renewable Energy Focus
we’ve had to overcome in order to get financing have moved. Also, it really comes down to the quality of the portfolio; we really focus on a pristine client base and ideal creditbased project development. For that reason we’ve had a lot of success in being able to garner the cash we need in order to be able to develop the projects. I look around the [solar] space, though, and I’m finding that not everyone is able to obtain that type of portfolio, and that creates challenges. Anyone who’s been part of a large distributed generation closing knows that when you have such a mixed bag of odds and ends, it gets more complicated, the cost goes up, etc. So people are going to have to figure out those
challenges as well to be able to expand on the availability of capital. Paul Nahi (Enphase): Lyndon [Solar City] recently came out with a loan product that’s very exciting. My question is: With the advent of loans, do you still think there’s going to be a shortage of capital? Or is it more ‘tax equity’ capital to which you are referring? Lyndon Rive (Solar City): I’m referring to all capital needs. It also varies dramatically from company to company. For example, if you are running a business in 2015 and you’re expecting 30 per cent growth in 2016, then it’s not so dramatic. But I would think that most of us are planning for 100 per cent growth in 2016. When any company goes through 100 per cent growth, they are going to see constraints in their ability to do that; one of the biggest constraints is going to be working capital. There’s going to be tax equity and straight debt financing, and that means you’re going to have to go out and create all these new relationships with potential investors. So if you don’t build that foundation in 2015, you’re going to face those constraints in 2016. But let’s assume that you solve those capital constraints. The question then comes: How do you get the equipment installed? What type of investments are you going to make to ramp up? Well, those investments will have to be made in 2015 in order to achieve that anticipated growth in 2016. It might be a little easier on the residential scale, but on the commercial side you can’t just magically make it happen.
Question: Lyndon, how much capital do you have to raise per year? Lyndon Rive: In 2015, we’re going to have to raise at least $3 billion in order to finance all of our assets.
Question: What is the capital structure of your company, i.e., what is the percentage of debt vs. tax equity? Lyndon Rive: I would say tax equity normally comes in around 30–40 per cent; it depends on the funds and the
About: SPI 2014 is organized by the Solar Energy Industries Association (SEIA) and the Solar Electric Power Association (SEPA). Interview
“The ‘right thing to do’ is to tax pollution…But if you’re not going to tax those who pollute, then the alternative is to incentivize those who don’t pollute.” — Lyndon Rive, Solar City cash flows. Debt comes in about 30–35 per cent and the rest is equity.
Question: Ryan Creamer, what is your capital structure by percentage? Ryan Creamer (sPower): Today it’s pretty simple for us because we base it on balance sheet funding, so it’s 100 per cent and then we tie that in with our tax equity partners for the different projects.
Question: OK, it’s 100 per cent for you, but what’s the percentage of equity vs. tax equity at the project level? Ryan Creamer: It’s probably in the neighborhood of 55/45 per cent equity vs. tax equity, respectively.
Question: Michael Silvestrini, what about the capital structure at your company? Michael Silvestrini: Our capital stack is very similar to what Lyndon just described. About a year ago it was delineated by one-third/one-third/ one-third [tax equity/debt equity/ equity]. That has since shifted around with the changing of terms and the improvement of both tax equity and debt equity terms and conditions, so you’re starting to get better than 33 per cent for those two categories. But obviously the goal is to reduce the equity — the most expensive component of the financing.
Question: Stacey Kusters…for a big utility like NV Energy, what is the capital structure? Stacey Kusters (NV Energy): There is no tax equity, but it’s around 52/48 per cent, debt vs. equity, respectively.
Question: You’re not financing at the project level, so I would imagine that you’re heavy equity, with some debt?
Paul Nahi: Exactly. We don’t do projects or installations. Rather, we are a technology company; we provide the technology to make the installation easier simpler and more effective. We provide the technology that increases the return on those assets. Naturally we rely on tremendous partners to actually do the installation and handle the financing.
Question: Shifting gears…are you seeing any effect on your business from the U.S. import duties on solar modules? Ryan Creamer: Absolutely. When you look at the utility sector, as we’re going out and building projects, we spend a lot of time with green field developers, helping them bring their projects to fruition. When you look at the way developers view price points going forward, everybody is speculating. I’ve heard people say we’re going to get to a [dollar] per watt, and I hope that we do. But when you look at the impacts…you will probably spend an additional $15 million to $20 million this year on panels due to a tariff. I think it’s wasted money. It’s affecting the rate payers and the tax payers, but it’s not helping anybody.
Question: Michael Silvestrini…any effect on you? Michael Silvestrini: Yes, it will have an effect. And it’s tragic because on one hand we’re working on systems improvements, such as building the racks that we put string inverters on in our warehouse and then driving them out to sites and making a strategic delivery sequence in order to shave off two-tenths of a penny [off the price]. On the flip side, we lose $0.20 per watt on a tariff. It’s the opposite of the trajectory of the industry, and it makes it challenging for us to wean ourselves off the incentives.
It’s difficult to try to justify the logic behind the tariffs, and it’s forcing companies operating in the space to take risks that they might not otherwise take.
Question: We’ll take a question from the audience: “Listening to all the concerns about 2016 and the ITC ‘cliff,’ how do the panelists feel about Sen. Harry Reid’s stated goal of getting the ITC extended? Lyndon Rive: In my opinion, the ‘right thing to do’ is to tax pollution. That’s probably the best policy you could implement [raucous applause]. Those who are polluting are extremely influential, and that’s a big lift. But if you’re not going to tax those who pollute, then the alternative is to incentivize those who don’t pollute. The idea that we’re going to have a reduction in something that’s solving the world’s biggest problem is mind-blowing to me. We have the technology, and we have the solutions. We should extend the ITC until we can tax pollution, but if you can’t tax pollution then extend the ITC in perpetuity. SPI 2015 is set to take place Sept. 14–17 in Anaheim, Calif.
References 1. One of the highlights of the annual SPI 2014 conference was a roundtable discussion that included some well-respected names in the solar industry, including Paul Nahi, CEO of Enphase; Michael Silvestrini, president, Greenskies; Lyndon Rive, co-founder and CEO of Solar City, Stacey Kusters, vice president, renewable energy and & origination, NV Energy; and Ryan Creamer, CEO of sPower. Keith Martin, partner with Chadbourne & Parke, served as moderator.
March/April 2015 | Renewable Energy Focus
47
Many industry observers expect there will be sufficient tax equity and straight debt financing available for viable solar projects. The only question then becomes: How do you get the equipment installed? Image courtesy of Shutterstock.
Solar industry leaders debate the hot issues
I
N PART II of this feature, solar industry experts discuss the nuances of solar project financing, the availability of capital, and the impact of duties on some solar module imports. (Part I appeared in the January/February edition of REFocus.)
In the first installment of this roundtable discussions, recapped from SPI 2014 in Las Vegas), executives representing the solar electricity industry1 shared their viewpoints on a range of issues, including solar capacity generation, resource planning, and innovations in storage and smart metering. Following are excerpts of the second portion of that roundtable discussion:
Question: Are any of the developers on the panel finding it hard to get capital right now? Michael Silvestrini (Greenskies): No. Right now it feels as though there’s a lot of capital for this type of product. It’s tried-and-true technology, so a lot of the previous hurdles
46
March/April 2015 | Renewable Energy Focus
we’ve had to overcome in order to get financing have moved. Also, it really comes down to the quality of the portfolio; we really focus on a pristine client base and ideal creditbased project development. For that reason we’ve had a lot of success in being able to garner the cash we need in order to be able to develop the projects. I look around the [solar] space, though, and I’m finding that not everyone is able to obtain that type of portfolio, and that creates challenges. Anyone who’s been part of a large distributed generation closing knows that when you have such a mixed bag of odds and ends, it gets more complicated, the cost goes up, etc. So people are going to have to figure out those
challenges as well to be able to expand on the availability of capital. Paul Nahi (Enphase): Lyndon [Solar City] recently came out with a loan product that’s very exciting. My question is: With the advent of loans, do you still think there’s going to be a shortage of capital? Or is it more ‘tax equity’ capital to which you are referring? Lyndon Rive (Solar City): I’m referring to all capital needs. It also varies dramatically from company to company. For example, if you are running a business in 2015 and you’re expecting 30 per cent growth in 2016, then it’s not so dramatic. But I would think that most of us are planning for 100 per cent growth in 2016. When any company goes through 100 per cent growth, they are going to see constraints in their ability to do that; one of the biggest constraints is going to be working capital. There’s going to be tax equity and straight debt financing, and that means you’re going to have to go out and create all these new relationships with potential investors. So if you don’t build that foundation in 2015, you’re going to face those constraints in 2016. But let’s assume that you solve those capital constraints. The question then comes: How do you get the equipment installed? What type of investments are you going to make to ramp up? Well, those investments will have to be made in 2015 in order to achieve that anticipated growth in 2016. It might be a little easier on the residential scale, but on the commercial side you can’t just magically make it happen.
Question: Lyndon, how much capital do you have to raise per year? Lyndon Rive: In 2015, we’re going to have to raise at least $3 billion in order to finance all of our assets.
Question: What is the capital structure of your company, i.e., what is the percentage of debt vs. tax equity? Lyndon Rive: I would say tax equity normally comes in around 30–40 per cent; it depends on the funds and the
About: SPI 2014 is organized by the Solar Energy Industries Association (SEIA) and the Solar Electric Power Association (SEPA). Interview
“The ‘right thing to do’ is to tax pollution…But if you’re not going to tax those who pollute, then the alternative is to incentivize those who don’t pollute.” — Lyndon Rive, Solar City cash flows. Debt comes in about 30–35 per cent and the rest is equity.
Question: Ryan Creamer, what is your capital structure by percentage? Ryan Creamer (sPower): Today it’s pretty simple for us because we base it on balance sheet funding, so it’s 100 per cent and then we tie that in with our tax equity partners for the different projects.
Question: OK, it’s 100 per cent for you, but what’s the percentage of equity vs. tax equity at the project level? Ryan Creamer: It’s probably in the neighborhood of 55/45 per cent equity vs. tax equity, respectively.
Question: Michael Silvestrini, what about the capital structure at your company? Michael Silvestrini: Our capital stack is very similar to what Lyndon just described. About a year ago it was delineated by one-third/one-third/ one-third [tax equity/debt equity/ equity]. That has since shifted around with the changing of terms and the improvement of both tax equity and debt equity terms and conditions, so you’re starting to get better than 33 per cent for those two categories. But obviously the goal is to reduce the equity — the most expensive component of the financing.
Question: Stacey Kusters…for a big utility like NV Energy, what is the capital structure? Stacey Kusters (NV Energy): There is no tax equity, but it’s around 52/48 per cent, debt vs. equity, respectively.
Question: You’re not financing at the project level, so I would imagine that you’re heavy equity, with some debt?
Paul Nahi: Exactly. We don’t do projects or installations. Rather, we are a technology company; we provide the technology to make the installation easier simpler and more effective. We provide the technology that increases the return on those assets. Naturally we rely on tremendous partners to actually do the installation and handle the financing.
Question: Shifting gears…are you seeing any effect on your business from the U.S. import duties on solar modules? Ryan Creamer: Absolutely. When you look at the utility sector, as we’re going out and building projects, we spend a lot of time with green field developers, helping them bring their projects to fruition. When you look at the way developers view price points going forward, everybody is speculating. I’ve heard people say we’re going to get to a [dollar] per watt, and I hope that we do. But when you look at the impacts…you will probably spend an additional $15 million to $20 million this year on panels due to a tariff. I think it’s wasted money. It’s affecting the rate payers and the tax payers, but it’s not helping anybody.
Question: Michael Silvestrini…any effect on you? Michael Silvestrini: Yes, it will have an effect. And it’s tragic because on one hand we’re working on systems improvements, such as building the racks that we put string inverters on in our warehouse and then driving them out to sites and making a strategic delivery sequence in order to shave off two-tenths of a penny [off the price]. On the flip side, we lose $0.20 per watt on a tariff. It’s the opposite of the trajectory of the industry, and it makes it challenging for us to wean ourselves off the incentives.
It’s difficult to try to justify the logic behind the tariffs, and it’s forcing companies operating in the space to take risks that they might not otherwise take.
Question: We’ll take a question from the audience: “Listening to all the concerns about 2016 and the ITC ‘cliff,’ how do the panelists feel about Sen. Harry Reid’s stated goal of getting the ITC extended? Lyndon Rive: In my opinion, the ‘right thing to do’ is to tax pollution. That’s probably the best policy you could implement [raucous applause]. Those who are polluting are extremely influential, and that’s a big lift. But if you’re not going to tax those who pollute, then the alternative is to incentivize those who don’t pollute. The idea that we’re going to have a reduction in something that’s solving the world’s biggest problem is mind-blowing to me. We have the technology, and we have the solutions. We should extend the ITC until we can tax pollution, but if you can’t tax pollution then extend the ITC in perpetuity. SPI 2015 is set to take place Sept. 14–17 in Anaheim, Calif.
References 1. One of the highlights of the annual SPI 2014 conference was a roundtable discussion that included some well-respected names in the solar industry, including Paul Nahi, CEO of Enphase; Michael Silvestrini, president, Greenskies; Lyndon Rive, co-founder and CEO of Solar City, Stacey Kusters, vice president, renewable energy and & origination, NV Energy; and Ryan Creamer, CEO of sPower. Keith Martin, partner with Chadbourne & Parke, served as moderator.
March/April 2015 | Renewable Energy Focus
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