Does it exist?  The answer is yes, but not nearly enough to meet even a fraction of demand.  It is a lenders market out there and the big banks are picking only the best deals or deals driven by current and future relationships.  Leasing companies are:

Leasing
Leasing is a great option as the cost of solar has dropped allowing for traditional capital lease terms in the 5-7 year range to offer a viable solution for solar systems that now have paybacks less than this.  For investment grade credit, longer term leases of up to 10 years for commercial and 20 years for municipal leases.  Tax exempt entities such as schools and churches can opt for a tax lease and pass on these great tax benefits for a reduced lease payment which will help make such projects even more attractive.  Another potential option for higher credit clients is to structure a residual of 20-30% with the shorter leases (5-7 year).  These balloon payments will reduce monthly payments even further.

Operating leases are also available which allow for off balance sheet transactions.  Usually these are structured with a buyout calculated at present value at the end of the term.

Power Purchase Agreements
Power Purchase Agreements have been utilized by Utilities and large corporate energy users for years. In recent years, they have been offered to Renewable Energy as well.  A PPA allows for the end user to buy only the power that the project creates without having to carry the capital cost.  It is an off balance sheet transaction for the client.  Maintenance and Operation is handled by the PPA group, terms usually are from 15-20 years with annual increases substantially less than historical utility cost increases.  There is usually a buyout agreement in place once the depreciation on the system has expired (5-6 years).  So this can be seen as a way to lower costs immediately and , in addition, a hedge against future energy costs.  Ownership, REC’s, rebates and tax credits remain with the PPA group. Some offer a purchase option at the conclusion of the agreed upon term, dependent upon your contract.  PPA groups vary with target markets broken into 3 separate groups:  residential (up to @ $100,00), commercial ($100,000-$20 Million) and utility ($5 million+).  PPA groups usually are very selective about the technology, vendor, operator, etc…   They can be very demanding of the installer and end user.  They dictate the term

Other Forms of Financing:
A/R (Factor) Finance - For Installers and manufacturers, accounts receivable financing (factoring of receivables), including rebate and tax grant receivables is a great option.  This allows vendors to increase their working capital.  With traditional lending in this space is currently very limited, factoring is a quick, easy, yet expensive short term solution.  This will help companies that are experiencing high growth and need to free up cash flow.

Vendor Program Finance – Very specific vendor finance programs can be created to meet the specific needs of certain vendors.  These programs usually must offer over $20 million of projects within a year through the vendor.

On Bill Finance - Some utilities offer “On Bill Financing” where they offer the financing and bill through your existing accounts.   Usually these programs tie into the rebate programs and must be approved products and services.

PACE Programs - In California, PACE funding programs are run by municipalities and finance the projects through your property tax.  There are currently only a few cities that offer this service including Palm Desert and Berkeley.  Hopefully we will see more cities starting PACE programs.

Government Bond Finance-
Expanded energy-related tax credit obligations -Clean Renewable Energy Bonds (“CREBs”) and Qualified Energy Conservation Bonds (“QECBs”)

Created Build America Bonds (“BABs”), which are issued by municipalities to pay for general governmental capital projects.

Created Qualified School Construction Bonds (“QSCBs”), which are issued by public school districts to construct, rehabilitate or repair facilities or for land acquisition.

Expanded Qualified Zone Academy Bonds (“QZABs”), which are issued by public school districts for the renovation or equipping of public school facilities or for development of course materials and teacher training.

Recovery Zone Economic Development Bonds (“RZEDBs”), which are issued by local governments to pay for public infrastructure and construction of public facilities.

Recovery Zone Facility Bonds (“RZFBs”), which are issued by local governments on behalf of for-profit entities to finance property eligible for depreciation.

In summary, there are a variety of financial options for most renewable energy projects.  This does not mean that funding is easy to come by, but don’t give in should you run into road blocks.  Renewable energy finance is in its infancy, but growing fast.   Stay tuned as more lenders jump on board and lending becomes easier to obtain.

Larry Thrall
Partner
Vireo Energy Financial Services
Lthrall@vireoenergy.com