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The largest solar installer in the US announced Wednesday that it is offering up to $200m in bonds to retail investors, marking the first registered public sale of solar bonds in the country. SolarCity’s landmark move toward crowdfunding could democratize the way solar projects are bankrolled and grow overall investment for clean energy.
Large institutional investors (such as Google, Honda and US Bank, in the case of SolarCity projects) finance the bulk of solar projects today. While individual investors can already put money into solar projects via crowdfunding platforms such as Mosaic, SunFunder and Crowdsun.com, most of these opportunities are only available to accredited investors – wealthy individuals – or are limited to just one or a few states, said Tim Newell, SolarCity’s vice president of financial products.
“This is the first time you’re seeing investment offered broadly to American investors through a public offering,” Newell said on a press conference call Tuesday. “In other cases, companies are allowing investors to invest in a single solar project or perhaps a small group of homes or projects.”
It’s an important shift given that investments in clean energy have been falling, even as the global solar and wind markets see double-digit growth. Investment flows have dropped about 20% in the past two years as solar and wind prices have fallen, Michael Liebreich, head of Bloomberg New Energy Finance, said during a Climate Week event in New York last month.
But investors are looking for the types of steady returns that clean energy projects can provide, said Steve Cornell, senior vice president of policy and strategy at NRG, at the same event. “It’s no news to anybody that CDs are paying next to nothing and cash is paying less,” he said. “I think there’s a huge global appetite for yield-like investments that can create steady capital growth.”
The SolarCity bonds, which are available to US nationals in all 50 states who are at least 18 years old and have a US bank account, will represent a portfolio of thousands of projects across the country. Through its new direct investment website, SolarCity is offering a range of bonds – starting at $1,000 – that mature in one to seven years and pay up to 4% interest out of income from SolarCity’s projects.
Here’s how the bonds work: investors register at solarbonds.solarcity.com, transfer funds either via wire or electronically from a bank account, then review the available bond offerings and place an order, which will typically be issued the next business day. The bonds, which are held electronically, will pay interest semiannually and the principal when they mature.
While the model is new to clean energy, it’s inspired by a crop of direct lending platforms, such as Prosper and Lending Club, as well as GE Capital Invest Direct.
A drop in the bucket
Industry watchers are likely to keep a close eye on the offering to determine whether the model might make sense for other clean energy projects. But it’s unlikely retail investors will overtake institutional investors in financing solar any time soon.
“The goal here is not to replace institutional investors, but to diversity our financing,” Newel said. “Any new financing product takes a while to grow. But we believe over time this could be a significant part of our financing strategy.”
Liebreich points out, though, that $200m is a drop in the bucket. “At some point we need to be doing billions of dollars of this stuff,” he said.
The fact that SolarCity, and not the financial services industry, is taking this on illustrates a major gap – or what Liebreich calls “an abdication of responsibility” – in investment options for clean energy.
Why does SolarCity have to launch their own bonds all the way to retail services? Why aren’t people like Charles Schwab and others like that marketing these products? They’re the people who have got all the distribution channels into the investors.”
If the offering is successful, it could spur some innovation around retail services products, he said.
Investment as marketing
In the shorter-term, SolarCity sees the bond offering as a tool to build awareness among the general public.
“If you look at the task we have to overcome in transforming the energy infrastructure, it’s a massive task,” SolarCity CEO Lyndon Rive said. “We need to deploy large amounts of money as fast as humanly possible. … One of our biggest tasks is raising awareness and helping people understand that solar is not a 10-year investment with minimal payback.”
Giving retail investors a chance to participate, so that everybody can make a solar investment and enjoy the same returns as institutional investors, will create awareness, he added.
Rive expects that more awareness will also lead to new customers.
Amy Davidsen, the US executive director of The Climate Group, called the offering “an important innovation” for growing capital for cleantech.
“This is the first opportunity for individuals to be able to participate in this transition at this level,” Davidsen said. “It’s very exciting and I hope others will follow suit.”
She expects the bonds will prove attractive because of their strong return and affordable minimum, as well as giving people a way to fight climate change.
“New ways to engage people and raise capital are critical,” Davidsen said. “If you have some skin in the game, then you’re going to want [solar] to succeed in the same way as when you invest in a stock, you want that stock to be successful. [This] will include supporting policies to help support clean energy.”
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