The Truth About Small Commercial Solar Financing

Small commercial solar finance is an active market with a range of established financing providers. This runs contrary to the widely-held belief in the industry that small commercial is “underserved.”

Small commercial and nonprofit customers are regularly financing their solar projects with a range of financiers that have multi-billion dollar financing track records. The largest financiers of solar projects have experience financing both energy-related projects and non-energy equipment.

Farm Credit has served agriculture customers for over 100 years and is the leading solar lessor to farmers. Ygrene Energy Finance has executed over $1 billion of PACE financing, for energy efficiency, as well as water conservation and disaster resiliency. Technology Credit Corporation, my company, has financed over $2 billion of technology and energy equipment since 1988 through PPAs and leases. Key Bank, Wells Fargo Bank and countless community and regional banks have financed leases for thousands of small solar projects across the country.

A successful financing depends on a qualified customer and an experienced, well-capitalized investor, as well as a skilled salesperson. We explore these three key criteria below.

Making commercial solar finance work: Property, Partners, and Practices

1. Financiers need to deal owners of real property.

A high percentage of small businesses lease their real estate rather than own it, which is unfortunate from a solar perspective. These are often the most visible businesses — retail, restaurants, offices — that a solar developer may approach. However, real property ownership is the critical credit criteria when requesting a long-term equipment financing.

Credit criteria vary significantly among lenders, leasing companies and PPA investors. However, the common thread is that we all look to contract with owners of real estate, not tenants. If an organization’s reason to exist falters, it will be valuable real property that will make creditors whole.

2. Work with established financing partners that have track records in (and out of) solar.

Over the past decade, many solar contactors and customers have endured great frustration with financing groups that have signed contracts but failed to deliver. By performing a little focused due diligence up front, the customer can be confident in its financing partner selection.

The key is to distinguish between:

Established financing companies with capital readily available, that are looking for customers to invest in, and

Inexperienced new entrants looking to lock up customers first, and then go hunting for capital.

Here is where the trade-off arises: The customer may have several financing offers and may assume that all offers are equally viable, just as if s/he were selecting mortgages on Lending Tree.  (Remember “When banks compete, you win”?) Except that — just as with Lending Tree — some of the bidders may not be the venerable lenders the customer assumes they are.

This creates a “slot machine” effect: Maybe the project gets financed promptly at a great rate — but there’s a high probability it never gets financed at all.

If the customer asks a few important questions upfront, the truth about potential financing partners will clearly emerge:

Will you be my counterparty for the term of our financing agreement?  The customer should know exactly who it will be relying on when entering into a 10-20 year agreement.  An established and stable financing company will hold the asset on its balance sheet.

How many solar projects have you paid for and commenced financing?  Viable financing alternatives will have dozens of active solar financings, at minimum.  The real performers will have hundreds.  The new entrants will try to dazzle customers with the number of projects in their “pipeline” and will avoid answering this question.

Who is supplying the capital for the financing and who is absorbing the federal tax credit?  The answer should be logical and clear without any uncertainty about past or future execution.  A viable financing party will give a detailed answer explaining how every step of financing from construction to long-term capitalization is performed.

Is the financing party pushing you to sign its contract?  The new entrant without capital will push the customer sign its contract so it can shop the project to find capital.  The established finance company will be focused on assessing credit worthiness and credit approving the customer before it wants to invest time in contracting.

Regardless of how aggressively the financing option is priced, it is worthless unless the financing party performs. The customer should do its due diligence to ensure it selects a financing partner that will deliver.

3. Best-practices to ensure the customer understands the proposal

From my experience working for a large solar contractor (REC Solar), a manufacturer (SunPower), and now a high volume commercial solar financier, one truth has become clear:  The primary roadblock to a closed deal is the customer decisionmakers fully understanding the solar value proposition.

When I joined SunPower in 2011 to finance projects for its commercial contractors, industry sales people (and executives) were saying to me, “we need more financing for commercial solar.” Within a year, I had prepared hundreds of viable financing proposals. The customers were creditworthy and the projects offered substantial savings.

We had financing. Most projects still weren’t closing.

Whether it is a board member of a non-profit or the owner of a small business, decisionmakers will commit to a 20+ year decision only when they clearly understand the transaction economics, risks and responsibilities.

For example: A key insight from my experience in 2011 was that customers did not understand the complex utility savings calculations. The arrival of Energy Toolbase (ETB) in 2014 was a true game-changer. Since then, ETB has become the gold standard in utility analysis.

Fast-forward to 2018: With compelling but complex incentives coming online in Massachusetts and Illinois, shifting utility peak hours in California, and mind-boggling demand-reduction calculations with energy storage, capturing customer economics in an accurate, straightforward manner is as important as ever. In addition to ETB, solar performance modeling tools such as Helioscope are rapidly establishing themselves as industry best-practices.


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James has been developing & financing solar energy projects since 2008 and has over 20 years of financial advisory experience. Before joining Technology Credit in 2017, he founded American Renewable Capital (ARC) a financier of small to medium size commercial solar projects. Prior to ARC, James held management positions with SunPower Corporation and REC Solar. Before entering the solar industry, James worked as an investment banker for First Boston and Salomon Brothers for 10 years. He is a graduate from the University of California at Berkeley.

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