13 June 2014


New investment models attract billions to solar assets


In addition, on the rooftop solar market a process of asset-based securitization of solar leases and green securitization of whole mortgages combined with crowd-funded community energy schemes, are creating a distributed energy model, European financial experts state.

,,Solar PV is becoming a buy to hold play with a single digit return and low or even zero leverage. This is priced as a natural hedge against continuous regulatory changes. Yieldcos and IPP’s are very much in fashion at the moment. Bonds are also developing to provide third party non-banking debt to solar projects. Securitisations have taken place in the UK and US, but they still require some time to develop in Europe,” says Federico Giannandrea, partner and head of Foresight Group Italy.
,,Listed IPP’s and Yieldcos are the most promising models for investing in solar assets in the future as they offer a disconnection between the illiquidity of the underlying asset and the liquidity of the share/fund unit tradable on the stock exchange which can be available either to institutional or retail investors. They provide a unique opportunity for big investors to take the big tickets - €50/100m or more - that these players require in order to make investments. Both offer the possibility to invest in already operating assets, whether they recently entered into operation or having a track record up to five years satisfying the cash on cash need of big investors.”
Giannandrea is one the experts joining the debate on innovative investment models during the Solar Secondary Markets Europe conference in London on July 3rd.

Mark Henderson, partner at Greencoat Capital, sees Yieldcos as the most tangible investment models at the larger end of the market. ,,Since Greencoat Capital listed the Greencoat Wind fund in the UK  - the first such renewable energy vehicle to be listed on the main market in London - a number of other funds have listed, raising over €1 billion between them. This includes funds dedicated to the solar sector. It allowed some substantial projects to be funded,” Henderson says.
According to him solar assets have become investable for big investors. ,,Look at the size of the portfolios that are being built and sold on the secondary market in €50-100m tranches. Serious large scale investors should create, or invest in, a fund with the ambition to invest in new projects, buy portfolios from existing funds and partner with developers who have meaningful pipelines,” he says. ,,Those investors who were worried about investing in the UK when the first tariff reductions were somewhat clumsily introduced, would have made excellent returns; and those who continue to hold out because of future changes will find that they will continue to miss the boat. The bolder institutional investors are now aggregating their portfolios, finding better ways to finance and refinance them and are generating highly attractive returns – so new investors will need to move quickly to be a part of this.”
Henderson also sees opportunities for providing equity as well as debt into small or medium sized solar projects. Henderson: ,,Quite separately there will be a growth in grass-roots community energy schemes as local groups see the potential to own and control their own electricity source, earn income from it and reduce their reliance on utilities. This will be funded through community share issues, crowd-funding and specialist lenders.”

Sean Kidney, CEO of London based NGO Climate Bonds Initiative, sees asset-based securitization of solar leases and green securitization of whole mortgages as next steps for the market. ,,Green mortgages - based on low-emission, energy efficient homes being better able to meet mortgage repayments - will begin to attract better ratings and interest rates,” he says.
The innovation on the bond market this year are corporate bonds where proceeds are ring-fenced to qualifying climate projects, including solar, Kidney states. ,,That allows mixed business companies to tap growing thematic bond interest. Future growth will be in project bonds - albeit more for post-construction rather than pre-construction- bundling of projects to get bond-issuing scale, and green securitization. This will allow equity investors, utilities and bank lenders to offload mature assets and more quickly recycle capital to new projects. Yieldcos will be a part of this as they develop a side business in bond issuance, taking assets from utilities and developers and flipping them.”

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