Solar Securitization! (11/13)

ETF PM currently has long positions in SolarCity (SCTY).

The Next Big Innovation in Renewable Energy Won’t Be Technological

It will be financial.

By Todd Woody, 11/11/13

Silicon Valley solar company SolarCity last week quietly did something that could revolutionize renewable energy in the United States. No, the company did not invent a radically more efficient or cheaper photovoltaic panel. Rather, it announced it plans to sell $54 million in asset-backed securities.

And that is a very big deal, even if the dollar amount of the notes on offer is rather small. That’s because the assets backing the securities are leases for some of the rooftop solar systems it has installed on homes across the country. Hundreds of millions of dollars in solar leases have been signed in the U.S. in recent years. If those leases can be bundled and sold to pension funds and other investors, “solar securitization” could open up a potentially huge new pool of capital that could be tapped to finance the expansion of renewable energy as federal and state tax breaks for renewable energy begin to expire. For homeowners and businesses, solar securitization could translate into cheaper electricity. A SolarCity spokesman declined to comment on the securities offering.

Much of the innovation responsible for the solar industry’s explosive growth has been financial rather than technological. Half the U.S.’s solar capacity, for instance, was installed just in 2012. Driving those sales was the ability of homeowners to avoid the five-figure cost of a photovoltaic system by leasing it for a monthly payment that often is lower than what they’d pay their local utility. Anywhere between 75 and 90 percent of all solar systems are now leased as a result.

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