Fueled by record-setting growth in home solar installations, leading residential solar finance-and-installation companies such as SolarCity and SunPower and investment banks have been able to move briskly along and bring investors up the learning curve by introducing new financial products that lower the cost of capital to issuers while still offering attractive returns to investors.
Among the newer renewable energy finance instruments are asset backed securities (ABS) and collateralized debt obligations (CDOs) backed by home solar loans and leases. In addition, electric utilities and renewable energy project development companies such as Abengoa, NextEra and SunEdison have been raising additional capital by spinning off and selling solar and renewable energy projects to in-house, publicly traded yield companies, or “yieldcos.”
When it comes to the middle, commercial and industrial (C&I) tier of U.S. solar and renewable energy sector finance, developments haven't proceeded as quickly, and for a variety of reasons. A structured portfolio of local Ontartio Power Authority (OPA) feed-in tariff (FIT) distributed PV projects put together by U.S.-based Nautilus Solar Energy's Canadian subsidiary may signal a turning point is at hand.
A Full-service Approach
In addition to offering the means for Ontario residents and First Nations communities to invest in local, distributed PV projects, Nautilus's “full-service” approach to solar PV project development encompasses portfolio structuring, finance and physical, as well as financial, asset management. The company, co-founder and CEO Jim Rice told REW, sees through all facets of C&I solar PV portfolio assets over their entire life cycle – financial structuring, management and administration as well as project design, engineering, procurement, construction, insurance, operations and maintenance.
Representing one of the largest distributed solar power generation portfolios to be financed in Canada, Nautilus on January 8 announced that Rabobank has approved a C$39 million non-recourse construction and term loan facility that will enable Nautilus and partner Moose Power to proceed with the construction of a portfolio of distributed solar PV installations at commercial and industrial sites — warehouse and storage facility rooftops — in Ontario.
Nautilus's co-founders and management are bringing the combined knowledge and experience they have acquired helping bring large, conventional energy industry projects to bear on the middle, C&I tier of the distributed clean energy generation segment of the North American market. In doing so, they are helping standardize the process and lower the perceived risks and cost of capital associated with creating portfolios of diverse, solar power generation assets.
In speaking with REW, Rice highlighted the importance of what he and co-founder Laura E. Stern term the “efficiency of capital,” as well as the cost of capital in creating and providing both financial and physical asset management of diverse portfolios of local, distributed PV assets throughout their life cycles.
The Efficiency of Capital
When Rice and Stern talk about the efficiency of capital, they refer to both the cost and timing of cash flows on both sides of the ledger. There are about 24 projects in development as part of Nautilus's latest portfolio of distributed solar PV generation assets, for instance. “We're preparing to build them, and we don't want anything, cash flows or otherwise, to get in the way of their timely completion,” Rice elaborated.
Nautilus has developed what amounts to a set of project finance and asset management templates that help guide and assure that project cash flows and construction stepping stones, as well as ongoing operations and maintenance, are undertaken and completed on-time and within budgetary constraints. A template for the debt financing Rabobank is providing, for example, enables Nautilus to draw-down capital quickly as project construction proceeds.
“Then, when you finish construction, we have very well-defined processes to help ensure there are no hiccups when it comes to flip the switch and bring these distributed PV generation assets online,” Rice continued. Similarly, Nautilus has instituted well-defined processes that manage the administrative details associated with debt and equity instruments and stakeholders.
At the end of the day, Nautilus's full-service approach to distributed C&I PV portfolio and asset management enables the company to bring renewable energy assets online more quickly and efficiently than is typically the case.
According to Rice, “This enables us to aggregate multiple distributed PV generation assets faster, keep costs down and minimize delays. That's very important, not only from our perspective, but from that of Rabobank, our equity investors, our construction and operations and maintenance partners and the OPA.”
The Social and Environmental Aspects and Benefits
A focus on spurring deployment of distributed PV generation capacity and participation by Ontario residents, community groups and local businesses — as opposed to utility-scale projects owned in the main by large investment companies outside the province — distinguishes the OPA FiT program from most other solar energy incentive programs in North America.
Besides Rabobank's debt financing, Ontario community and First Nations investment groups are equity investors in Nautilus' portolio of distributed PV generation assets, which collectively is expected to deliver between 8-9 MWs of clean, renewable solar power to OPA customers across the province.
The Eagle Lake First Nation North Sky CleanTech Alliance Fund L.P. and NewWorld Environmental Infrastructure L.P. are equity investors in the Ontario FiT C&I portfolio. So is Green Energy Co-operative, an investment co-op that specializes in enabling Ontario residents to invest directly in distributed solar and renewable energy projects throughout the province.
“Ontario’s feed-in tariff program has been a strong stimulus to solar that is serving as a model for other governmental entities throughout North America,” Everett Smith, managing partner of GoldenSet Capital Partners, which manages the NewWorld Environmental Infrastructure L.P. fund, was quoted in the news release.
“We are delighted to be working with Nautilus on behalf of our equity investors to bring solar to Ontario, and especially to be working with community and aboriginal partners. Our partnership with Nautilus was a clear choice: few solar developers have the knowledge and expertise to execute such a complex financing structure.”
Community Residents and First Nations Invest in Ontario C&I Solar Portfolio
Integral to the core egalitarian, social and community development facet of Ontario's FiT, OPA grants extra points to solar FiT project developers whose projects include community and First Nations investors. The prospect of getting a leg-up in winning 20-year Ontario FiT power purchase agreements (PPAs) means project developers such as Nautilus Solar are always on the look-out for community and First Nations investors and development partners, GECO's Kevin Epp, the only member of the renewable energy investment co-op's eight-person board to be employed by community solar power project developer Spark Solar.
As Epp explained: “Our primary goal is to acquire good investments and returns for our members.” Open only to Ontario residents, GECO members pay a $10 membership fee to join the renewable energy investment co-op. They can then choose to invest in solar and renewable energy projects GECO acquires an interest in, or not, and invest as little as C$400 or as much as they want.
“I'd characterize our co-op as an investment vehicle that we use to do some environmental and social good. We're stewards of people money first; the environmental and social good happens to be the space in which we work,” Epp said in an interview.
With its equity investment in Nautilus's distributed C&I PV portfolio, GECO members, as well as the other equity and debt investors, stand to earn attractive, low-risk returns for many years to come. In the process, the environment, as well as residents, businesses and government throughout Ontario stand to benefit as a result.
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