Solar Power Industry to Sell First Investment Bonds
In a first for the solar power industry, Wall Street is dealing with bonds backed by solar electricity payments. SolarCity, a provider of energy services, plans to sell the bonds, secured by its residential and commercial power contracts. The offering will be managed by Credit Suisse and has received an investment-grade classification of BBB+ from Standard and Poor’s. The bonds will have a yield of 4.8 percent, a relatively high rate that rewards investors for buying untested securities, and will be sold initially to select institutional investors. The solar industry needs new sources of financing. To date, it has relied on tax equity investments and has not been able to draw on capital from public markets. In its preliminary rating report, S&P outlined the risks of the industry’s limited operating history as well as uncertainty about the future of tax credits: the federal tax credit for solar energy projects is set to drop to 10 percent from 30 percent at the end of 2016. Other risks were identified, such as quickly evolving technology and changing utility rates. But S&P also pointed out benefits to the bonds, such as the inclusion of extra collateral, a special reserve account to cover equipment failures, and a shortened, 13-year bond term. In conclusion, S&P stated that it expected the market to continue to grow rapidly. This bond offering is an important step toward financial sustainability as we move toward an energy future powered by renewable sources. I’m John Howell for 3BL Media.
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