OPINION: Financing gets cool

SolarCity’s Lyndon Rive, left, with his PayPal cousin, Elon Musk

SolarCity’s Lyndon Rive, left, with his PayPal cousin, Elon Musk

When the average person is asked to think about innovation in renewable energy, he or she is likely to conjure up images of engineers in lab coats, tinkering away on wind turbines or solar panels in something resembling an aeroplane hangar.

Not that such an image is wide of the mark. Over the past five years, the wind and PV sectors have delivered technological advances — and attendant cost reductions — that have fundamentally changed the global conversation about future energy supplies, to the point where the International Energy Agency can scarcely go two hours without tweeting out something supportive about renewables.

Technology, however, is only one leg of the stool. Financial engineering, though perhaps not quite as visually evocative as the white-coated tinkerers, is equally important to the long-term success of renewables, and it is beginning to look every bit as exciting.

Over the past year there has been an explosion in how wind and solar companies are connecting with investors, allowing them to lower their cost of capital and thus compete more effectively with fossil fuels. And nowhere is this creativity more obviously on display than the US.

The PV sector is proving itself a font of financial innovation, especially towards the downstream end of the business, which in the US has deep ties to Silicon Valley.

Perhaps the most prominent example is SolarCity, whose core business, the third-party ownership model, has hugely broadened the pool of homeowners in a position to consider having modules installed on their rooftops. That the word “Solyndra” is fast disappearing from America’s conversation about solar energy is due in no small part to SolarCity’s meteoric ascent since its flotation less than 18 months ago.

Critically, SolarCity is not only expanding the solar opportunity for consumers, but also for investors. Much heralded by the financial press have been the company’s two successful offerings of solar-asset-backed notes — securitised solar, in other words — which represent a new means of recycling capital from operational assets back into upfront development.

karl_quote.jpgLess noticed was the company’s acquisition four months ago of Common Assets, an online platform that will allow small investors (though big ones are more than welcome) to invest in completed PV assets.

John Witchel, chief technology architect at Common Assets, was also co-founder of Prosper Marketplace, the leading peer-to-peer online lending marketplace — underscoring the cultural, technological and financial cross-pollination taking place in US renewables.

Common Assets will sound to some like Mosaic, the new-ish crowdfunding business that lets small-time investors lend money to solar developers at rates that banks would struggle to match. Mosaic recently announced that it will begin offering loans to homeowners who want to install PV on their roofs, putting it in direct competition with SolarCity.

Sungevity, another California PV company, continues to hone its cutting-edge software, which makes customer acquisition cheaper, more cleverly targeted and, frankly, cooler.

These companies are changing the way the sector does business and the way it thinks about itself. At the same time, chief executives like SolarCity’s Lyndon Rive — cousin of Tesla/SpaceX/PayPal impressario Elon Musk (himself a SolarCity shareholder) — are becoming minor celebrities in their own right, boosting the industry’s profile with the investment community.

On the wind side, financial innovation is happening more slowly, given the larger project sizes and the greater role played by utilities. But financial innovation is happening in wind too, as demonstrated by Pattern Energy, which last autumn raised more than $350m for development by floating its operational assets in a yieldco.

The promise of renewable energy was always contingent on the technology and manufacturing processes getting up to snuff. Without question, they now are. Turbines and solar panels will continue to get better, of course, but for all intents and purposes they have already got to where they need to be.

In contrast, the scope for innovation on the financing side still remains vast, and when tied to the growth in social media, the sky is the limit. This is what the next chapter in the renewables saga will be about. Happily, it is already being written. 

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