Innovating to meet investor needs

CleanCapital

Last week we closed on a seminal financing that brings our long-term goal of securitizing distributed renewable energy portfolios firmly within reach.

“Attracting institutional capital to renewable energy is our founding mission and singular focus.”

Bloomberg New Energy Finance estimates that $9.9 trillion will be invested in new zero-carbon power generation capacity through 2050. Yet the deep and sophisticated pools of institutional capital have, by and large, remained untapped as a source of financing for distributed clean energy. 

Lenders for these projects have traditionally been project finance banks along with select insurance companies and funds that specialize in renewables. The broader market—including structured product investors—has had few options for direct investment. That’s why we’re working to introduce innovative financial structures that match institutional investor needs.

The value of solar assets

Placed-in-service solar assets generate steady long-term cash flows with no input costs. For the most part, they’re uncorrelated to the larger asset classes such as equity and fixed income. And portfolios of moderately sized assets (normally about 1 – 20 MW) diversify investor risk. Alternative real assets like these provide current yield and long-term capital preservation, making them an attractive addition to institutional investor portfolios.

Meeting investor needs

Solar portfolios can be fragmented and complex, each in a different geography with disparate public policies, sunlight resources, and energy off-takers. Structured product investors want proven methods to assess an investment’s return profile and risk metrics.  

An asset-backed security (ABS) pools diverse assets into a single, standardized investment product with a rating from a credible agency to denote confidence in the underlying assets. ABS’s, like mortgage-backed securities, are a proven product. A portfolio of securitized clean energy assets shares many of the same attractive investment characteristics, and the current marketplace has established plenty of benchmarks off which these deals can be priced. 

For institutional investors, who wouldn’t invest otherwise, we’re fitting distributed clean energy opportunities into their comfort zone.

New frontiers

Late last year, we started talking to blue chip capital partners about solutions that would pave the way for a future securitization. C&I solar acquisitions are inherently complex, so the prospect of aggregating multiple portfolios—each financed individually in the bank market—into one structure could have been a major stumbling block to our goal. We preferred one financing structure that provided leverage to our diverse and growing pool of assets while we prepare to lock in long-term debt capital.

Our $300 million warehouse will give rise to our ultimate objective: to unlock another pot of institutional capital that serves to fuel the growth of renewable energy assets. For investors, securitization will beget a single, standardized investment product that conforms to their requirements and aligns with ESG goals. And for solar asset owners, our new source of financing will accelerate even more acquisitions of small-scale renewable energy projects.

Matt Eastwick, Chief Investment Officer