• Solar Bonds: SolarCity Launches First US Public Debt Offering
  • December 19, 2014
  • Law Firm: Preti Flaherty Beliveau Pachios LLP - Portland Office
  • Could publicly offered solar bonds play a significant role in financing solar photovoltaic projects?

    Solar energy company SolarCity Corporation appears to think so, as this morning it filed a registration statement with the U.S. Securities and Exchange Commission to issue up to $200 million in solar bonds. SolarCity describes the move as "the nation’s first registered public offering of solar bonds." What does SolarCity's solar bond offering mean for solar energy?

    By some metrics, SolarCity is the largest developer of residential solar photovoltaic projects in the U.S. The company says it is currently providing more than one out of every three new solar power systems in the U.S., and notes that it "installed more residential solar in the second quarter of 2014 than its next 50 competitors combined." While SolarCity develops projects under several financial models, its typically installs rooftop solar panels at its customers' sites with no upfront costs to the customer, who then pays the company every month for leasing the facilities or for the electricity it uses. These long-term contracts create more stable ongoing revenues for SolarCity compared to those experienced by developers of turnkey projects who may end their relationship after the project is commissioned.

    SolarCity's model has proved attractive to capital, as it has been involved with financing the installation of approximately $5 billion in renewable energy assets. Much of the capital SolarCity needs to develop these projects has come from investments from major banks and corporations including US Bancorp and Google Inc., as well as individuals owning shares of the company's stock (traded as SCTY).

    SolarCity has also turned to debt offerings, making three private placements of solar bonds in the last year. Generally speaking, SolarCity will pay returns on the bonds using income generated from customers' monthly payments. Because this income stream is both relatively stable and predictable, it should enable repayment of the bonds plus a steady yield.

    But no company has previously publicly offered solar bonds of this type in the U.S. SolarCity thus views its publicly offered solar bonding model as unique, in that it gives individual investors access to new investment opportunities -- and in turn, it may give SolarCity access to a whole lot more money -- up to $200 million in this round, with the prospect of more to come.

    Under SolarCity's new offering, investors will be able to purchase solar bonds for as little as $1,000, with maturities ranging from one year to seven years and interest rates of up to 4 percent. The relatively short maturity of these bonds, compared to those previously offered to institutional investors, helps reduce the risk that during the bonds' lives utility rates will change in a way that hurts their economics.

    The company notes that solar bonds will be available to all U.S. investors who are at least 18 years old and meet SolarCity’s eligibility requirements, with no fees for purchase. Indeed, the relatively low $1,000 minimum investment for this solar bond offering highlights SolarCity's strategy of targeting the millions of small or "retail" investors. To facilitate these individual investors' access to the bonds, the company launched a new online investment site (solarbonds.solarcity.com).

    How will the new solar bond offering affect SolarCity and the pace of solar development in the US? With a market capitalization of $4.2 billion, SolarCity is relatively large compared to the $200 million that it may raise pursuant to the current public bond offering. Nevertheless, individual investors' appetite for opportunities to participate in solar and other renewable energy projects may be significant enough that more bond offerings will follow on the heels of this one. As the Brookings-Rockefeller Project on State and Metropolitan Innovation found in an April 2014 report, Clean Energy FinanceThrough the Bond Market:A New Option for Progress, "Bond finance holds tremendous potential for clean energy investment, at levels in the tens of billions of dollars in the next several years." If SolarCity is indeed successful in attractive individual bond investors, other solar developers like First Solar, Inc. and Sunrun may soon follow suit with solar bond offerings of their own.